Analysis of Financial Performance Case Study
Added on -2021-02-21
| 8 pages| 1752 words| 95 views
Trusted by 2+ million users,
1000+ happy students everyday
Showing pages 1 to 3 of 8 pages
CASE STUDY
TABLE OF CONTENTSTASK 2............................................................................................................................................1Analysis of financial performance of Alpha Limited..................................................................1REFERENCES................................................................................................................................5
·TASK 2·Analysis of financial performance of Alpha Limited 1. ROCE- It is referred as the profitability ratio which measures the efficiency of anenterprise in generating profits from its invested or employed capital in its business by makingthe comparison of its net profit with that of the amount of capital employed by it. Furthermore,capital employed is been computed by reducing the current liability from the total amount of theassets (Caballero, Farhi and Gourinchas, 2017). In other words it is considered as the value of anoverall assets that are employed in the business unit and thus by employing the capital, it meansan entity is making an investment for the purpose of generating higher returns. Return on capitalemployed is considered as the useful measure in respect of assessing the financial efficiency as ithelps the firm in analysing the factor of profitability that will be gained from the amount of thecapital invested.Calculation of Ratios31-DEC-201731-DEC-2018Return on capital employed = OperationProfit ×100Capital Employed375/1912.5 = 0.19 or 19%412.5/2925 = 0.141 or 14%·Interpretation- The above analysis shows that the ROCE ratio of Alpha Limited isdeclining over the year which is not a positive sign in context of its performance. Higher theROCE ratio implies that the capital is been used optimally whereas lower ratio depicts that thefirm is not using its capital effectively (Ak and et.al., 2013). The reason behind the decreasingROCE of Alpha Limited is use of the outdated machinery and delay in paying off its debts.Company should sale of its outdated or obsolete machinery which in turn would result in lowerbase of its total assets and this leads to improve its ROCE ratio as by removing the unnecessaryassets allows for employment of lesser capital in order to facilitate same value of the production.Other ways through which an organisation can improve its ROCE ratio is by paying off theirdebts that in turn reduces the liabilities and hence the resulted value of the ratio get improved.1
Found this document preview useful?
You are reading a preview
Upload your documents to download
or
Become a Desklib member to get accesss
Paid Plans
Free Plan
Single Unlock
Monthly Plan
Yearly Plan