Financial Analysis: Computation of Ratios and Recommendations

Financial Analysis
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Contents
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
Computation of different ratios and analysis:........................................................................3
Recommendation:...................................................................................................................6
REFERENCES................................................................................................................................7
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INTRODUCTION
Financial analysis corresponds to process of analysing business's financial statements for
determining a financial result. It aids in the evaluation of benefit, solvency, liquidity as well as
sustainability. Ratio analysis, DuPont evaluation and Popular Size Financials are the three main
instruments used in the financial statement evaluation. Most well-known method is ratio
analysis. Different facets of a corporation can be judged using liquidity, capital
structures, productivity, growth, and value ratios. Financial analysis in business is useful for
evaluating, comparing, and valuing a business (AREAS, 2018). For their various reasons,
different stakeholders use different proportions. The study covers computation and analysis of
different financial ratios based on the given income statement and balance sheet of Elite plc.
Further, it consists of recommendations based on ratio analysis of business.
Main Body
Computation of different ratios and analysis:
Gross Profit Ratio:
Years 2018 2019
Gross Profit Ratio
Gross Profit 600000 1080000
Sales 3000000 5400000
Gross Profit Ratio = Gross Profit / Sales *100 20% 20%
It determines relationship among gross profit earned versus net revenue derived from
operations which is also recognized as the Gross Profit Margin ratio. The gross profit ratio
(GPR) is profitability ratio presented as percentage so this multiplied by 100 (Šimonová, Čentéš
and Beleš, 2019). Elite plc’s gross profit ratio computed for year 2018 and 2019 is 20%. There is
no increment in gross profitability of business.
Operating Profit Ratio:
Years 2018 2019
Operating Profit Ratio
Operating Profit 240000 580000
Sales 3000000 5400000
Operating Profit Ratio = Operating profit / sales * 100 8% 10.74%
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