Blakemore's Bakery: Profitability Analysis and Ratio Evaluation

This report analyzes the profitability and performance of Blakemore's Bakery through ratio analysis. It examines the gross profit ratio and net profit ratio to assess the company's financial position. Recommendations are provided to improve profitability.

Blakemore's
Bakery

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The present report is based on Blackmore’s Bakery, a small type of family running by
round 20 people. It is making wide variety of the Bakery products and had retail counter for
serving local community and also supplies to the small shops within the local area. Furthermore,
the study involves preparation of income statement in order to ascertain profitability and to
analyze the ratios in relation to profitability of the company. Moreover, the study highlights the
profitability ratios for the purpose of measuring the performance of an entity in an effective and
efficient manner. This report will present he information regarding financial position and
performance of the firm.
TASK 1
The layout of a profit and loss account
Name of Company:
Blakemore’s
Bakery
Trading, Profit and Loss Account: For the
Year Ending 15000
Particulars £ £
Sales 475000
Less Cost of Sales :
Opening Stock 10000
Plus Purchases 205000
215000
Less Closing Stock 15000

200000
Gross Profit 275000
Less Expenses :
Delivery expense 13250
Utilities 27125
Internet 1500
Business rates 9000
Advertising 25375
Insurance 8000
Printing & packaging 28500
Maintenance and repairs 5000
Vehicle expenses 12825
Wages and Salaries 129425
Total Expenses 260000
Net Profit 15000
Ratio analysis- It referred as the technique that makes comparison of the line items
present in final reports of an organization. It is used for evaluating large number of the issues
with an enterprise like profitability, solvency, and liquidity.
Particulars Formula
Amoun
t
Gross profit 275000
Net sales 475000
Gross profit
ratio
Gross profit/Net
sales*100 58%
Net profit 15000
Net sales 475000
Net profit
margin
Net profit/Net
sales*100 3%

Gross profit ratio- It refers to the profitability ratio which shows the relationship between
net sales and the gross profit. It is seen as the most useful tool for evaluating operational
performance of business. It is been computed by dividing gross profit with that of the net sales. It
is seen as the most crucial ratio for the business and must be enough in order to cover or meet all
the variable cost and the expenses for the profit (Hughen and Strauss, 2017). It has been stated
that higher the gross profit, better the operational performance and lower the gross profit, poorer
the performance of the company. From the above data it can be interpreted that the gross profit
target for the company was 60% but the actual gross profit earned was just 58% which means
that the actual cost of goods sold was more than the budgeted cost as a result the profit margin
reduced subsequently.
Net profit ratio- The net profit ratio is a profitability ratio that depicts the relationship
between net profit and net sales. It can be computed by dividing the net profit after tax with net
sales and multiplying it with 100. It can also be calculated by subtracting operating expenses and
income tax from gross profit (Prajanto and Pratiwi, 2016). It is the most important ratio as it
helps the business in identifying its actual profit margin and the growth rate. Every company’s
major objective is to earn high profit because it helps them in increasing their growth rate in the
market. A high net profit ratio indicates an efficient management of the affairs of business
whereas a low profit ratio depicts poor financial management of the business (Pangesty, 2016).
From the above data it can be analyzed that the projected net profit of company was 12% but the
actual profit achieved was just 3% thus the business needs to reduces its cost of operations and
also improve its management facilities to increase its profit ratio.
TASK 2
(Enclosed in PPT)
CONCLUSION
From the above report it has been concluded that the gross profit ratio and net profit ratio
of the company are accounted as low or below the targeted performance. This means that
company needs to take appropriate measures for the purpose of making its performance better

and good. Moreover, ratio analysis has been counted as the most suitable tool through which the
firm could understand and analyze its profitability and can also make comparative analysis of its
current years with that of past years figures and against the competitors effectively and
efficiently. Moreover, in order to improve the net profit margin, enterprise must reduce its cost,
increase its sales and increase its prices so that large amount of profits can be generated by an
entity in overall industry and the market. This would also enables the firm to reach its set targets
or in achieving the goals as per the standards or set budget.

REFERENCES
Books and journal
Agburu, J.I., Anza, N.C. and Iyortsuun, A.S., 2017. Effect of outsourcing strategies on the
performance of small and medium scale enterprises (SMEs). Journal of Global
Entrepreneurship Research. 7(1). p.26.
Akyüz, K.C. and et.al, 2016. Evaluation of stock management model in small and medium-sized
furniture industry. DüzceÜniversitesi Orman FakültesiOrmancılıkDergisi. 12(2). pp.19-26.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Cloutier, D., Davis, J. and Dowling, J., 2017. Bridging the divide: Reducing operating expenses
and pursuing sustainability in leased spaces. Corporate Real Estate Journal, 6(3), pp.276-
289.
Fares, R.L. and Webber, M.E., 2017. The impacts of storing solar energy in the home to reduce
reliance on the utility. Nature Energy. 2(2). pp.1-10.
Hossain, M. and Islam, T., 2019. Effect of Advertising Expenses and Sales Incentives on
Financial Performance: Dissecting the Cases of Two Market Leaders. Business and
Economic Research. 9(1). pp.69-83.
Hughen, J.C. and Strauss, J., 2017. Portfolio Allocations Using Fundamental Ratios: Are
Profitability Measures More Effective in Selecting Firms and Sectors?. The Journal of
Portfolio Management. 43(3). pp.87-101.
Hünecke, K. and et.al, 2019. What role do transaction costs play in energy efficiency
improvements and how can they be reduced?.
Pangesty, A. W., 2016. AN ASSESSMENT OF CURRENT RATIO, DEBT TO EQUITY RATIO,
RETURN ON ASSET, RETURN ON EQUITY AND GROSS PROFIT MARGIN AS A
PREDICTOR OF STOCK PRICE’S BEHAVIOUR IN CONSUMER GOODS COMPANY
LISTED IN INDONESIA STOCK EXCHANGE (Doctoral dissertation, President
University).
Prajanto, A. and Pratiwi, R. D., 2016. The Impact of Corporate Cultures and Financial Ratios on
The Fraudulent Financial Reporting. Jurnal Dinamika Akuntansi. 8(1). pp.39-52.
Surywanshi, D., Mhendole, A., Baghel, M.S. and Akhtar, F., 2019. Stock Management
Application.
Turner, S. and Endres, A., 2017. Strategies for enhancing small business owners' success
rates. International Journal of Applied Management and Technology. 16(1). p.3.
Yao, J., 2017. Optimisation of one-stop delivery scheduling in online shopping based on the
physical Internet. International Journal of Production Research. 55(2). pp.358-376.
Zheng, J. and Gu, Z., 2017, December. Research on express delivery vehicle route planning
method for stochastic customer demand. In 2017 IEEE 2nd Information Technology,
Networking, Electronic and Automation Control Conference (ITNEC) (pp. 783-787). IEEE.