ASSOCIATED BRITISH FOOD PLC

Associated British Food Plc

Associates British Food Plc

Introduction

Associated British Foods plc is a British multinational food, ingredients and retail group with sales of £8.235 billion and over 96,000 employees in 44 countries. It is headquartered in London, England. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. ABF's retail subsidiary Primark, a discount clothing chain, accounts for more than one fifth of turnover.

Ratio Analysis

Profitability Ratios

Profitability ratios are the projection of how successfully the firm is managing its assets and debts. Actually, profitability ratios measure the ability of the firm to generate earnings or how successfully the firm has generated earnings over a period of time. Profitability ratios are the indicators of the success or failure of the firms' activities.

ROA = Net Income + Interest Expenses/Total Assets

ROA 2008 = (4,397,648+22,969) / 11,817,756

= 37.4%

ROA 2007 = (1,667,985 + 71,943) / 6,592,536

= 26.4%

The return on assets ratio shows that how effectively the assets of Associates British Food Plc are working to generate profit. According to the situation of the above calculated figures, we can say that the return on assets has increased. This is a positive sign for the company as its earnings are increasing in accordance with the assets.

ROE = Net Income + Interest / Common Equity

ROE 2008 = (4,397,648+22,969) / 7,615,512

= 58%

ROE 2007 = (1,667,985 + 71,943) / 3,217,864

= 54%

Return on equity ratio is a comparison of the amount of earnings and the shareholders' equity. This ratio shows the investors that how much the company has earned in contrast to the amount of shareholder' equity. The trend in the return on equity is positive. This means that the earnings are increasing in comparison to the shareholders' equity.

Sales Margin = (Sales - Operating Expenses) / Sales

Sales Margin 2008 = (34,937,800 -9,293,962) / 34,937,800 = 73.4%

Sales Margin 2007 = (17,785,896 -5,162,044) / 17,785,896

= 70.9%

Liquidity Ratios

Liquidity ratios determine the firms' ability to pay back her debt in time. This is a major influencing factor in the performance of any firm. The basic premise of the liquidity ratios is to determine the liquidity of the firm. In this section, we will focus on the current ratio only as it is the main determinant of a firms' liquidity.

Current Ratio = current assets / current liabilities

CR 2008 = 10,883,862/4,151,203

= 2.62

CR 2007= 5,989,452/3,281,588

= 1.82

From the above figures, it is clear that the trend in the current ratio is increasing which means that Associates British Food Plc is facing excess liquidity position in the current year i.e. 2008. Since the current ratio of 1 means that the firm has £1 for every £1 of the current liability. This is the most admirable situation. In this case the current ratio is continuously increasing which means that the company is not utilizing its currents assets properly i.e. the current assets are lying idle. This is also not good for the company in future.

Turn Over Ratios

Turnover ratios define the performance of the company in terms of ...