Assignment on Ratio Analysis

Ratio analysis

Table of Contents
INTRODUCTION........................................................................................................... 3
CONCLUSION.............................................................................................................. 2
REFERENCES............................................................................................................... 3
Appendix.................................................................................................................... 4

INTRODUCTION
Ratio analysis is the method or process by which the relationship between two figures or
group of figures from the financial statements are computed and presented. It is the important
tool of financial analysis. It is used to interpret the financial statements so that the strengths and
the weaknesses of a firm can be determined (Dicle, and Meyer, 2018). It also facilitates the
current and the historical performance condition so that company could make comparison
between the actual and the standard performance. The present report is based on the ratio
analysis of two companies that are Minoan group plc and the Elegant group plc which is a luxury
hotel based companies listed on the exchange. It also includes the analysis of different ratios like
Profitability ratios, liquidity ratios, working capital management, shareholder return and the
overall financial performance.
Ratio analysis
Profitability ratio analysis
Particulars Formula
Minoan group plc
2015 2016 2015 2016
gross profit
ratio
gross profit
/sales*100 95.26% 96.28%
62.95% 64.79%
operating
profit ratio
operating
profit/sales*10
0 -8.8% -10.7%
14.71% 28.93%
net profit
margin
net
profit/sales*10
0 -23.8% -30.9%
8.05% 22.19%
Interpretation- Profitability ratio analysis enables the organisation in knowing the
ability of its business to generate the earnings in relation to its sales, operations
and the expenses. From the above table it is analysed that the gross profit of the
Minoan group plc for both the years 2015 and 2016 is resulted as 95.26% and

96.28% that are greater than the Elegant group plc that is 62.95% and 64.79%
which indicates that the Minoan has huge money left after its cost of goods sold
which leads to higher profits (Pando, and et.al., 2019). The operating profits of the
elegant group plc are 14.71% and 28.93% for 2015 and 2016 which are seen as
higher than the Minoan group plc that is equated as -8.8% and -10.7% which
depicts that elegant has efficiently managed its cost and expenses regarding the
operation of its business. The net profit margin is the profitability ratio which states
the net income of the company after paying all the tax and interest expenses so as
the net profit margin of the Minoan group plc is negative i.e. -23.8% for 2015 and -
30.9% for 2016 and the elegant group plc has positive net income margins equals
to 8.05% and 22.19% for both the years which clearly reflects that elegant is more
profitable and has effectively managed its payment of taxes and interest expenses.
Liquidity ratio analysis
particulars formula Minoan group plc Elegant group plc
2015 2016 2015 2016
Current ratio current
assets/current
liabilities
4.23 3.55 0.98 0.73
quick ratio =
quick
assets/current
liabilities
current assets-
(stock+prepaid
expenses)/curr
ent liabilities
0.22 0.21 0.75 0.52
cash ratio = cash & cash
equivalent/cur
rent liabilities
0.014 0.008 0.46 0.26
Interpretation- liquidity ratio are used for measuring the company's ability to meet the short
term requirement. Higher liquidity ratio means higher the capability of the organisation to meet
the short term obligation and can covert its asset into cash at a specific point of time (Sari, and
et.al., 2018). From the above analysis it is interpreted that Minoan group plc has reached its
current ratio beyond the ideal current ratio i.e. 4.23 and 3.55 which are greater than the ideal

ratio i.e. 2:1 means the current assets are 4 & 3 times the current liability for the year 2015 and
2016 while the current ratio of Elegant group plc is below the ideal ratio resulted as 0.98 and
0.73 that means the liquidity position of the company is not good. The ideal quick ratio is 1:1
that means higher the quick ratio, higher the business capacity to meet its financial obligations
while lower the quick ratio means the company is too much dependant on its stock and other
current assets for cash in hand so as both Minoan and elegant has lower quick ratio that resulted
as 0.22 & 0.21 for Minoan and 0.75 &0.52 for elegant that reflects both are highly dependant on
its inventory and other short term assets (Nissim, and Penman, 2019). Cash ratio of Minoan is
equals to 0.014 for the year 2015 & 0.008 for the year 2016 and for elegant it is ascertained as
0.46 & 0.26 that are less than 1(ideal cash ratio) which means the companies can not rely on its
cash for paying off its current liabilities.
Working capital management
Particulars Formula Minoan group plc Elegant group plc
2015 2016 2015 2016
Working
capital ratio
current assets-
current
liabilities
46374413.1 36188338.34 -210286.98 -3446666.98
working
capital
turnover ratio
sales/net
working
capital
0.204770774 0.225557672 -259.48 -16.08
Interpretation- Working capital management means managing the current assets and current
liabilities of the firm so that the day-to-day operations of the enterprise can run smoothly
(Horrigan, 2015). The above table includes the analysis of working capital ratio which indicated
that higher the ratio, higher the favourable condition for the companies for paying of their current
liabilities through the sale of its current assets so as Minoan has higher working capital ratio as
compared to elegant group plc which is evaluated as 46374413.1 for 2015 & 3618838.34 for
2016 which are greater from the other company resulted as -210286.98 & -3446666.98 for the
year 2015-16 which means that Minoan has optimum current assets to meet its liabilities than the
other company. The working capital turnover ratio is calculated as sales to net working capital

where net working capital is equals to current assets minus current liabilities. This ratio depicts
the company's efficiency in maintaining and using its working capital in relation to the net
annual sales (Johnson, 2015). As the analysis shows that the elegant group plc has negative ratio
so it reflects that it is inefficient in using its working capital but has used the necessary measures
which leads to a huge favourable change that is from -259.48 in 2015 to 16.08 in 2016. on the
other hand Minoan has its working capital turnover ratio in 2015 as 0.204 and in 2016 as 0.225
which means it is efficiently making use of its current assets and current liabilities regarding the
revenue.
Solvency&risk
Particulars Formula Minoan group plc Elegant group plc
2015 2016 2015 2016
Solvency ratio net income +
depreciation/to
tal liabilities
-0.024183417 -0.03255939 0.05 0.09
Debt-equity
ratio
long term
debt/sharehold
ers equity
0 0 0.42 0.54
interest
coverage ratio
Earning before
interest and
tax/interest
charge
-0.585127202 -0.530997305 2.88 8.16
Proprietary
ratio
shareholders
funds/total
assets
0.809784215 0.771761542 0.65 0.60
Interpretation- Solvency ratio helps the business in measuring its ability to pay-off its long term
debts. Elegant company has higher solvency ratio that is equals to 0.05 & 0.09 from the Minoan
company resulted as -0.024183417 & -0.03255939 which means that elegant has a strong
solvency position than the Minoan that leads to financial strength (Thanassoulis, and et.al.,