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Extracts from this document...

Introduction

Middle

Conclusion

They are in a safe financial situation. Year 2001 Acid test = (current assets-stock)/current liabilities Acid test = 373.2/200.6 Acid test = 1.86 Year 2002 Acid test = 480/251.5 Acid test = 1.91 Again the ideal result is 1:1 at least and for both years the company is nearly 2:1 meaning they do have sufficient money to pay its current liabilities. Return on capital employed The return on capital employed ratio (ROCE) tells us how much profit he company we earn from the investments the shareholders have made in their company. Year 2001 ROCE = profit for the year/equity shareholder's funds ROCE = 83.9/499.7 ROCE = 0.17% Year 2002 ROCE = 100.8/546.9 ROCE = 0.18% In 2001 shareholders earned 0.17% in return of what they invested and in 2002 they earned 1% more. Asset turnover Asset turnover measures how effectively a business is using assets to generate sales. It is: Sales/assets Year 2001 Asset turnover = 1588.5/527.6 Asset turnover = 3.01 Year 2002 Asset turnover = 1871.7/586.1 Asset turnover = 3.19 In 2001 turnover (sales) is 3.01 bigger than total assets and in 2002 turnover is 3.19 bigger than total assets. In other words the company was able to generate sales of �3.01 for every �1.00 of assets in 2001 and in 2002 the company generated �3.19 of sales for every �1.00 of assets. Debt/equity ratio Measure used to assess a company's financial health. The ratio is calculated by dividing the company's long-term debt (capital contributed by creditors) by the shareholders' equity (contributed by owners). Year 2001 Debt/equity ratio = 18.5/499.70 Debt/equity ratio = 0.04:1 Year 2002 Debt/equity ratio = 20.4/546.9 Debt/equity ratio = 0.04:1 For both 2001 and 2002 the debt/equity ratio was almost zero. This indicates the business prefers equity funding to debt funding which minimises the interest payment problems and the control problems of having a dangerously high level of long-term debt on the balance sheet. Overall the company did well in 2001 and 2002 and in fact it did better in 2002. The company is in a solid financial health. ?? ?? ?? ?? 1 ...read more.

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