# ASSIGNMENT P5, M2 & D2- RATIO ANALYSIS

by gargi123456 (student)

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. Using the net profit ratio it can be compared to the gross profit. If the gross profit is higher than the net profit it means that the business is spending more money on it operating costs.

Calculation:

The calculation shows that the net profit for SIGNature is only about 19.4% which shows the company is not making enough profits before the tax reduction. The gross profit margin is 38.3% higher than the net profit margin which clearly implies the organization is spending too much money on their operation costs.

ROCE- Return on Capital Employed

ROCE shows the return of money the business is expected to get after its capital investments.

Calculation:

The calculation shows a total of 121% which implies the company is likely to have a high income after its capital investments. This means the company should be able to sort their financial problems out as they are getting more income.

Liquidity

Current ratio: It is an indicator of a firm’s ability to meet short-term financial obligations; it is the ratio of current assets to current liabilities. When the ratio is higher it is better for the company to pay of its short term liabilities. A ratio under 1 indicates that the business may struggle to pay off their short term liabilities.

Calculation:

This ratio signifies a figure of 4.52:1 which infers SIGNature will be able to afford their short term liabilities. This is positive as they don’t have any additional financial crisis. However, the management is ...