Accounting Ratios

Accounting Ratios

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 2............................................................................................................................................1
1. Calculate the following five ratios...........................................................................................1
2. Compare the performance of Alpha Limited...........................................................................2
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting ratios is an essential or major sub-set of financial indicators which categories
into metrics that used to evaluate the company's performance and efficiency based on the
financial results (Haddad, Shibly and Haddad, 2020). These offer a means to explain the
relationship from one accounting set of data to the next and form the basis for interpretation of
the ratios. ALPHA Limited selected for this report, which is UK based manufacturing company.
Company began their operations in 1954 and it plans to expand its operational processes in the
next ten years to other regions of the Country. This assessment covers the several topics such as
ratio analysis and evaluates the performance through comparing two year’s financial
information.
MAIN BODY
TASK 2
1. Calculate the following five ratios
Ratio Formula 2017 (£’000) 2018 (£’000)
Return On Capital
Employed (ROCE)
= (Operating Profit
/Capital Employed)
*100
= 375 / 1,912.50 *100
= 19.60 %
= 412 / 2,925 * 100
= 14.10 %
Net Profit Margin = Net Profit / Revenue
* 100
= 300/ 2400 * 100
= 12.5 %
= 262.50 / 3000 * 100
= 8.75 %
Current Ratio = Current Assets /
Current Liability
= 757.50 / 322.50
= 2.34 Times
= 1035 / 1110
= 0.93 Times
Debtor Collection
Period
= Receivable / Sales
*365
= 450 / 2400 * 365
= 68.43
= 68 Days
= 600 / 3000 * 365
= 73 Days
Creditor Collection
Period
= Payable / Purchase
* 365
= 285 / 1350 * 365
= 77.05
= 77 Days
= 1050 / 2400 * 365
= 159.68
= 160 Days
1