Assessment of Business Performance of R plc through Ratio Analysis

This article evaluates the business performance of R plc through ratio analysis. It includes commentary on ratios such as gross profit margin, operating profit margin, ROCE, current ratio, quick ratio, debt-equity ratio, interest cover, dividend cover, earnings per share, and price earning ratio. The article concludes that the company needs to improve its performance and efficiency to increase profitability.

Business Performance

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Calculate and comment on the ratios of R plc.........................................................................................3
CONCLUSION...............................................................................................................................................5
REFERENCES................................................................................................................................................6

INTRODUCTION
Business finance is one of the most important components since it enables an industry to
increase appropriately in the sector so that it could endure and thrive in the marketplace for a
prolonged number of days. As a result, it must be identified and assessed with the greatest
accurate results (Alakaleek and Cooper, 2018). There are different ratios that assist in identifying
and assessing the productivity of the company overall, and the proportions of different aspects
are computed and understood in a substantial way beneath so that it may contribute positively to
the sustainable organisation, which really is R plc.
MAIN BODY
Calculate and comment on the ratios of R plc
 Gross profit margin: Gross profit / Net Sales * 100
= 10880 / 26245 * 100
=41.45 %
 Operating profit margin: Operating profit / Net Sales * 100
= 5313 / 26245 * 100
= 20.24 %
 ROCE: Earning before interest and tax / Capital employed
= 5313 / 26245 * 100
= 20.24 %
 Current Ratio: Current Assets / Current Liabilities
= 15089 / 9466
= 1.59
 Quick ratio: Current Assets - Inventory / Current Liabilities
= 15089 - 6983 / 9466
= 0.86

 Debt-Equity ratio: Debt / Equity
= 2800 + 9466 / 14540 * 100
= 84 %
 Interest Cover: Earnings before interest, tax and depreciation / Interest Expense
= 5313 / 980
= 5.42
 Dividend Cover: Net income / Dividend Declared
= 3033 / 1380
= 2.19
 Earnings per share: Net income - Preferred stock dividend / average outstanding shares
= 3033 / (5000 / 0.25)
= 3033 / 20000
= 0.15
 Price Earning Ratio : Share price / Earning per share
= 0.25 / 0.15
= 1.67
Commentary
Profitability: Profit provides investors with a "return" on their investment, as well as a key
source of money (retained earnings) for the firm's continued development. The economic results
of management are measured in terms of revenue.
Gross profit margin: The gross profit ratio is a useful rate that compares an industry's gross
margins to its total sales. Whenever an industry's shares or goods are bought, this number
indicates how profitable they are. To put that another way, the gross margin is the percentage of
a product's premium over its cost. This is the revenue generated from selling shares that might be
utilized to fund operating expenses. The excess margin ratio is commonly confused with the
revenues margins ratio; nonetheless, the two are not interchangeable. The gross margins
percentage solely considers the cost of products provided in its calculation since it evaluates the

effectiveness of spreading inventory (San-Jose and Retolaza, 2018). On either end of the
spectrum, the profit margins percentages accounts for additional costs.
Since the GP margin represents the firm's pricing policy, i.e. the amount of
competitiveness, it is widely assumed that this ratio will remain relatively steady over time. The
gross profit margin (GP margin) is calculated by subtracting the cost of sales from the selling
revenue earned.
Interpretation- As can be seen from foregoing, the industry's ratio is adequate when especially
in comparison to the sector, as the sector's ratio is 38 percent, whereas R plc's ratio is floating
approximately 41 percent, making it very profitable for the corporation. As a result, the
corporation must work to improve its ratio, which will benefit the company in many ways.
Overall revenue and lower cost-of-goods-sold might be the causes for the higher ratio.
Operating profit: This ratio assesses a firm's ability to generate profits in its business model -
including values is known and corp tax. It's all about controlling operating costs.
ROCE: The revenue generated from many capital utilised by the business is referred to as
ROCE. This will involve capital from its investors as well as lengthy borrowing.
Interpretation: The firm is operating well, as evidenced by the preceding study. It has a gross
profit margin of 41.45% and an operational profit margin of 20.24 percent. This is in contrast to
S plc, which generated these earnings at a rate of roughly 38 and 18 percent, correspondingly.
However, S plc's return on equity is significantly higher than R plc's. It is approximately 5%
higher. In terms of its liquidity position, the corporation is also underperforming. Even yet, the
company's standing isn't poor.
Current ratio: The current ratio is a dynamic stability metric that evaluates a debtor's ability to
generate down short-term obligations using current assets. The current ratio is a crucial measure
of sustainability because brief loans come due inside a year. This means that a company only has
a limited amount of time to earn the funds needed to pay off such obligations. Current assets,
including such cash, retained profits, and retirement investments, might be easily converted into
money in the short term. This means that companies with more current assets will be able to pay

down current commitments more quickly when they come due, without having to use long-term
revenue reserves (Hope and Vyas, 2017).
Interpretation- As shown by the aforementioned, the corporation's current ratio is far from
acceptable, as the market rate is 2:1, indicates the firm is falling apart. As a result, it is important
for the organisation to tackle the concerns instantly so that it can maintain and actually control
brief average accounts, as the business's current ratio is just all over 1.59:1. Increases in current
obligations may be the cause of this, yet current assets may not be able to keep up with the
growth (Alexandridis and et.al, 2018).
Debt equity ratio: Shareholders can use the D/E ratio to determine how a corporation's
economic infrastructure is doing and how secure it is generally. When one potential customer
decides to invest in a company, they must first grasp the company's mission. Whereas if
company's total debts surpass the proprietors' equity, the investor will evaluate whether or not to
engage in the firm, as too much borrowing is bad to a company in the long run. Whereas if
company's overall liabilities are too little in contrast to the proprietors' resources, the investor
will rethink investing in the company because the shareholding is not conducive to gaining
financial influence. If, but at the other side, the company handles both domestic and foreign
finance, the buyer may believe the company is a strong investment candidate (Srhoj and et.al,
2019).
Interpretation- It can be concluded from this that the proportion is indeed very adequate, as it
is significantly higher than the market estimate, as the manufacturing median is around 38
percent, while R plc's ratio is only about 84 percent, which is more than bigger, and thus the
achievement is adequate, and the explanations for this being its business consistency.
Earnings per share (EPS): It is an economic significant indication that measures net income
created per current share of stock. It is also referred as cumulative profit per unit. In those other
words, this is the worth that most every founder might get if all earnings were assigned to stock
holdings at the end of the year. EPS is a statistic that measures a team's growth from the
viewpoint of its stakeholders (Hussain, Salia and Karim, 2018).

Interpretation: According to the above, the business is not functioning at all well, since the
industry average is 21p, but it is only offering 0.000069, and the explanation for this might be the
company's lesser income.
CONCLUSION
As a result of the above, the company must evaluate its performance and efficiency in order
to bring about improvements in the sector, as the firm profit is far from adequate.

REFERENCES
Books and Journal
Alakaleek, W. and Cooper, S. Y., 2018. The female entrepreneur’s financial networks: accessing
finance for the emergence of technology-based firms in Jordan. Venture Capital. 20(2).
pp.137-157.
San-Jose, L. and Retolaza, J. L., 2018. Ethics in finance research: recommendations from an
academic experts Delphi panel. Journal of Academic Ethics. 16(1). pp.19-38.
Hope, O. K. and Vyas, D., 2017. Private company finance and financial reporting. Accounting
and Business Research. 47(5). pp.506-537.
Srhoj, S. and et.al, 2019. Closing the finance gap by nudging: Impact assessment of public grants
for women entrepreneurs. Radni materijali EIZ-a, (2), pp.5-41.
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and
access to finance: An analysis of enterprises in the UK. Journal of Small Business and
Enterprise Development.
Alexandridis, G and et.al, 2018. A survey of shipping finance research: Setting the future
research agenda. Transportation Research Part E: Logistics and Transportation
Review. 115. pp.164-212.