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investigating business

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Interpret Financial Performance using a range of Ratios A.) Return on Capital Employment (ROCE) ROCE compares earnings with capital invested in the company. It is similar to Return on Assets (ROA), but takes into account sources of financing. ROCE is used to prove the value the business gains from its assets and liabilities, a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes the same profit. It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities. Net profit after interest x 100 = ROCE Shareholder funds (capital) 02/03 01/02 270 x 100 = 13.9% 105.5 x 100 = 5.6% 1939.55 1882.0 In 01/02 Whitbread's ROCE was 5.6% where as their next year it was 13.9%. Looking at that there has been 8.3% increase and that is a massive improvement and the reason could be their massive reduction of their administration costs. It looks as if though they reduced their administration costs for nearly half of what they spend in their previous year. When investors want to invest in Whitbread plc this is one of the important things that they are going to look and it looks really good on Whitbread's point of view because they have improved immensely in one year and their investors might see it as a potential business. ...read more.


Current assets = :1 Current liabilities 02/03 01/02 230.4 = 0.94: 1 213.2 = 0.98: 1 244.0 218.6 The above current ratio is what I got for the two years given and looks as if Whitbread current ratio has fallen down by 0.4. That doesn't look good on Whitbread's point of view because it means that they went down �4 to every �100 than their previous year. They might want to get as close as possible because they don't want to fall far from 1 as it will result them to struggle to pay their short term liabilities which isn't good at all. Acid Test Another name for the "quick ratio". It is used to measure how easily a company could be liquidated, and therefore help financial institutions decide upon how credit worthy the company is. Liquid Assets = :1 Current liabilities 02/03 01/02 230.4 - 23.9 = 0.85: 1 213.0 - 28.1 = 0.85: 1 244.0 218.6 Looking at my figures above it shows that Whitbread hasn't made any improvements at all for their last year; it looks as if though they scored the same results as they did on their first year (01/02). Looking at that it doesn't mean they are doing bad in any way but it would be better to get as close to 1 as possible for Whitbread. ...read more.


However, it will vary between industries and so it is important to compare within an industry. Cost of goods sold = number of times per year all the stock is sold Average stock 02/03 01/02 1,353.1 = 52 times 1,548.00 = 60 times 26.0 26.0 In 01/02 the stock turnover was 60 times and their following year was 52 times. Looking at that it shows that their last year's stock turnover was 8 times less than what they did on their previous year. By judging at their last year it shows that the stock turnover is taking them longer to sell than their previous year and the reason could be because their prices went up and they are making less sales or they are selling something different than their previous year which means its new to customers so its going to take time to make those sales. B.) Analyse the Financial Health of Whitbread PLC I believe Whitbread PLC is doing well because despite ending with a negative figure on the first year they managed to get their balance back on track and id it seems as though if they will be improving on the following years. Judging on their profit and loss account I would say its worth investing as we can see the improvement they made on the second year. ?? ?? ?? ?? Unit 4: Finance for Business - AO3 15/12/2008 1 Alex Gur ...read more.

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