Business Performance: Ratio Analysis of R plc and Comparison with S plc

BUSINESS PERFORMANCE

Contents
INTRODUCTION.....................................................................................................................................3
BODY.....................................................................................................................................................3
CONCLUSION.........................................................................................................................................5
REFERENCES..........................................................................................................................................6

INTRODUCTION
Business performance refers to the ability of the business to use the resources with maximum
efficacy which would help the business grow and reduce its costs. A business is started with
the sole motive of earning profits. Profits are not just earned quantitatively but qualitatively
as well. Making the best use of the resources and managing the business activities efficiently
makes the business more profitable in the long run (Drummond, 2018). Business managers
have to ascertain time-to-time the amount of efficiency the business is earning. Business can
either compare the working by its own historical data or by comparing it with another firm
working in the industry. This report revolves around the business performance of a case
company R plc. The report highlights the ratio analysis of R plc and a brief comparison of the
same with another company working in the same industry, S plc.
BODY
Financial Ratio Analysis is a tool used in accounting which helps managers analyze the
financial data and take necessary steps for the management of the business. It is a relative
magnitude of two or more accounting values present in the financial statements of the
company (ElBannan, 2021). Financial ratios comparison is either done by comparing the
ratios of two different period of the same company or by comparing the ratios of two
different companies working in the same industry. Following are the calculations of the
different ratios of R plc followed by comparison with another company working in the same
industry, S plc.
Liquidity Ratio: This ratio tells the company’s ability to pay its short-term debt. In simple
terms, this ratio gives an insight as to how quickly the company can pay off its liabilities by
using the current assets. Following are the two types or liquidity ratios calculated.
Current ratio = Current assets / current liabilities
= 15089 / 9466
= 1.59
Quick ratio = (current assets – inventory) / current liabilities
= ( 15089 – 6893 ) / 9466
= 8196 / 9466
= 0.86
Analysis: By comparing the ratios of R plc with S plc, it is noticed that both the
companies have near to liquidity ratios. S plc have higher liquidity ratios means that
the company is doing better than the case company. Ideal current ratio is considered
as 2:1 and 1:1 as quick ratio. S plc has approves with the ideal data but R plc does not
meet the ideal liquidity ratios. This means R plc might face some issues in future if
the managers does not work effectively to maintain the liquidity ratio.
Profitability Ratio: This tells how profitable the business is. In wider terms it measures the
company’s ability to generate earnings taking in account its revenue and costs (Bhatt, and
Bhatt, 2017). Following are the calculation of different profitability ratios.