Financial Ratio Analysis and Understanding Financial Information

BUSINESS FINANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
PART- 1: FINANCIAL RATIO ANALYSIS.................................................................................1
Ratio Analysis..............................................................................................................................1
Interpretation................................................................................................................................2
Irrelevance of calculating the receivables collection period in this scenario..............................4
PART- 2: UNDERSTANDING FINANCIAL INFORMATION AND MANAGEMENT OF
CASH...............................................................................................................................................5
2.1 Explaining profit & cash flow and their differentiation........................................................5
2.2 Explaining working capital, receivables, inventory and payables.........................................7
2.3 Reasons for changes in the working capital affecting the cash flows...................................7
2.4 Appropriateness of the traditional and the alternative budgetary system for the business....9
REFERENCES..............................................................................................................................11

PART- 1: FINANCIAL RATIO ANALYSIS
Ratio Analysis
2019 2018
S.NO RATIOS FORMUALAS
CALCUL
ATION
CALCUL
ATION
1 Gross Profit Margin Gross profit / Revenues * 100 7.51% 5.60%
Gross Profit 1540 1000
Revenues 20510 17835
2 Operating Profit Margin
Operating profit / Revenues *
100 3.17% 2.97%
Operating Profit 650 530
Revenues 20510 17835
3 Current Ratio
Current assets / Current
liabilities 0.54 0.6
Current Assets 1570 1610
Current Liabilities 2920 2650
4 Quick Ratio
(Current assets – Inventory) /
Current Liabilities 0.25 0.23
Current Assets 1570 1610
Inventory 850 1000
Current Liabilities 2920 2650
5 Inventory Holding Period Inventory / Cost of Sales * 365 16.35 22
Inventory 850 1000
Cost of Sales 18970 16835
6 Payables Payment Period Trade Payables / Cost of Sales * 40.41 49
1

365
Trade Payables 2100 2280
Cost of Sales 18970 16835
Interpretation
Gross profit margin- The gross profit margin of the company shall be representing the
operational efficiency through conducting the routine business transactions in the company.
It is depicted in the percentage form wherein the gross profits that are earned are divided by
the revenues that are generated over the period for the organization. The higher is such ratio
the better it is for the profitability position of the business showing the lesser costs of
production. From the above table it can be represented that for Browns plc the gross profit
margin has increased from 5.60% in the previous 2018 to 7.51% in the current year 2019
(Agustina and Suprayitno, 2020). This reflects the significant increase which can be due to
the increased operational efficiency pertaining to the increased sales of the online food
delivery and the clothing business. The reason behind interpreting the gross profit’s ratio
increase is due to inclination of online food home delivery that has increased present year
GP than previous
 Operating profit margin- The operating profit margin of the company shall be showing
the performance that is generated through the routine operations that are undertaken by
the business. It is calculated by dividing the operating income to the sales of the company
and the operating income is identified post the deduction of all the operating expenses
that are incurred. As inferred by the above tabular representations the operating profit
margin of the Browns plc has also improved as compared with the previous year when it
was 2.97% and in the current year 2019 it has increased to 3.17%. The major reason for
this can be the strong and the aggressive marketing campaign that is being undertaken to
attract the larger portions of the market to the products and the services that are offered. Current ratio- The current ratio of the company shows the availability of the liquid assets
to meet the short term liabilities and obligations of the business. This shall be reflecting
the liquidity position and the maintenance of the credibility in the organization and
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