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Assignment P5: Ratio Analysis Profitability: Profitability is a measure of the profit of a firm in relation to another. This provides a fundamental measure of the success of the business. It also looks at how much profit the firm generates from sales or from its capital assets. Gross profit percentage of sales: This is the formula that shows the profit as a percentage of the income. For example, if the Gross Profit percentage of sales if high that means the business is doing well. And, if the Gross Profit percentage of sales is low that means the business is not doing well. Calculation: The percentage 57.7% represents the gross profit for SIGNature. The percentage is correspondingly above the half which means the business is doing well. Although there is only 7.7% more than the half, which signifies the management of the company needs to work hard to change the gross profit percentage, by the end of April 2011. Moreover, 57.7% is a good start for the gross profit for the company. Net profit percentage of sales The net profit margin is a profitability ratio which measures the profitability of the organisation. This indicator indicates the profit the company has made before the tax reduction. ...read more.


Hence, it affects their relationship with other companies in a bad way. Rate of stock turnover is the calculation which can be used to identify and to indicate the number of days which can be taken on average to sell the business?s stock. Calculation: SIGNature will take 17 times to have a turnover of stock in a year. This is a positive figure for the company. This is because they can try to increase the amount of times the turnover should take place. D2: Write a conclusion to summarise the overall performance of Shauna and Ryan?s first year of trading In this assignment, I will be evaluating all the ratios and explaining how it will impact on SIGNature. The ?Gross Profit Margin? for the company is 57.7%. This is a good percentage as it is over 50% which signifies that the business has a higher amount of money which is available to spend on operating payments as well as the business retains. The company should aim to keep the firmness of increasing their sales turnover as well as aiming to decrease the cost of sales to make sure that they have a secure and successful future, preventing any financial crisis. ...read more.


In comparison to the debtor?s collection period, the creditor?s payment period shows a better and stronger relation with the suppliers, simply because they are able to pay their money back quicker. In addition, this ratio also shows that the business will be able to pay off their debts as soon as possible in the future, meaning they will be able to control their finance and also prevent financial crisis. The rate of stock turnover for SIGNature in the first year of business is at 17 times a year. This clearly shows that the company sells their stock at a minimum of once per month. As it is the first time of trading, achieving this figure is relatively good and shows high chances for development and expanding their business. Selling the stock will allow the company to make more profit which they may use to re-invest into the organisation. To conclude, all the percentages are good and positive for the company, which clearly shows that the company SIGNature is doing well, showing potential for progress and achievement. However, there is one recommendation that I would make to Ryan and Sharma concerning the net profit margin. In order to improve on that percentage which is currently at 19.4%, the company should spend less money on their expenses and control their budget. Gargi Ambili-Sarika ...read more.

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