FINANCIAL ANALYSIS

Financial Analysis

[Name of the Institute]

Financial Analysis

Ratio Analysis

 Ratio Analysis

2011

2012

Profitability Ratios

 

Return on Capital Employed

2.33821

2.602155

Gross Profit Margin

240.7333

220.1559

Net Profit Margin

12.15696

13.79791

Asset Turn Over

1.839926

1.855841

Gearing Ratios

 

Gearing ratio

6.715024

7.325999

Interest Cover

23.3251

21.26502

Efficiency Ratios

 

Inventories days

0.157892

0.15523

Receivables Days

71.45708

74.15405

Payables Days

0.233473

0.227481

Operating Cycle (days)

71.84844

74.53676

Liquidity Ratios

 

Current Ratio

1.468088

1.282083

Acid Test Ratio

0.839236

1.034483

Profitability Ratios

Return on Capital Employed

The return on the capital employed is the ratio between the earnings before interest and tax to the return on capital employed or the net assets. It is the profitability ratios of the organization and measures the profitability of organization by articulating the operating profit as the percentage of the net assets or the capital employed. If the return on capital employed is higher, it expresses that the earnings generated by the organization is more per euro of the capital employed.

In the year 2011 the return on capital employed is 2.33 which have been increased in the year 2012 to 2.602 which indicates that the growth in the return on capital employed and also better performance of the firm (Drake, 2010).

Gross Profit Margin

It indicates the financial health of the organization. It expresses the efficiency of the organization in terms of utilizing its material, labor in the processes of production along with expressing or indicating the cost structure, the prices and also the efficiency of the production of an organization. If the gross profit margin of an organization is higher than it would be better for an organization.

The gross profit margin in the year 2011 was 240 while in the year 2012 it was 220, which shows that there is decline in the gross profit margin of the firm NEXT. It indicates that the efficiency of the firm also declined (Haniff, 2012).

Net Profit Margin

It can be articulated as the metric of the performance which analyzes the success of the decision for an investment of an organization to its debt situations. If the net profit margin is negative then it indicates that organization is unable to pay back the debt and make an optimal decision as if the expenses for the interest rate were higher, the amount returned produced by the investments. If the net profit margin is greater than it will be better for an organization.

The net profit margin has been increased from year 2011 to the year 2012 from 12.15m to 13.798 which indicates the better performance of the firm.

Asset Turn Over

Asset turnover is the ratio that indicates the efficient utilization of assets in order to produce more sales. Asset turnover ratio is the ratio of sales of organization to the assets of an organization. The turnover ratio will be higher if the sale generated by the firm is less as compared to the efficient utilization of assets, which indicates the good financial position and performance of the company as the asses were efficiently utilized. On the other hand if the assets are not utilized efficiently then the asset turnover ratio is will be lower and therefore, it indicates the firm weakness in utilizing the assets effectively and efficiently.

Asset turnover has also been increased from 1.83 to 1.85 which indicates slight increase in the profitability of ...