Financial Analysis of ElectroServe PLC

Financial analysis
ElectroServe PLC
Student Name

Table of Contents
Background..................................................................................................................................................2
Discussion and Analysis...............................................................................................................................2
Financial Performance Analysis...............................................................................................................2
Financial Position Analysis.......................................................................................................................3
Recommendation and Conclusion...............................................................................................................3
References...................................................................................................................................................4

Background
As report has been prepared on the financial analysis of the company
ElectroServe plc for the year 2033
where the company suffered the loss of $520000. The company has been analyzed based on different
types of ratios and comparison has been drawn with respect to the industry. Finally, recommendation
has been given towards the end to improve the financial performance and the financial position of the
company (Alexander, 2016).
Discussion and Analysis
For analyzing a company, ratio analysis is one of the best techniques as it helps in identifying the trends
w.r.t. to the past period and the industry and thereby setting the targets for the years to come by. The
analysis has been bifurcated in 2 parts namely financial performance review and financial position
review.
Financial Performance Analysis
This mainly deals with the ratios associated with the profit and loss account of the company. The same
has further been divided in profitability and efficiency ratios.
1. Profitability Ratios: This ratio focuses on the profitability and the sales growth of the company.
a. Return on capital employed: It measured the return to the shareholders of the company. It
shows if the capital invested by the shareholders is earning profits for the company. For
ElectroServe plc, we can see that the ratio has been negative in both the year 2032 and
2033 indicating the erosion of capital, the same has however improved from last year.
Industry trend is 13.3%, which shows that the company needs to improve a lot (Dichev,
2017).
b. Operating profit margin: This ratio shows the profit earned by company from normal
operating business of the company post all operating expenses. The same has improved
from -15% to -4.6% but it is still negative indicating higher operating expenses (Choy, 2018).
c. Gross margin ratio: There gross margin indicates the profit earned by company post
deduction of direct expenses related to sale. The GM improved from 23.5% to 28.6% which
is a positive sign for the company. The main reason for the same was increased in selling
prices and quantitative growth (Heminway, 2017).
d. Operating expenses to sales ratio: This shows the ratio of operating expenses incurred for
selling given goods. The same has improved as it came down from 38.5% to 33.2% but it is
still below the industry trend of 30.3%. This calls for reduction of expenses and cost cutting
measures in the company.
2. Efficiency Ratios: The efficiency ratios shows if the business is improving in managing its
resources like debtors, creditors, inventory, fixed assets, etc.
a. Revenue on capital employed ratio: This shows the ability of the company to use its capital
to generate the sales. Mathematically, it is calculated as (Revenue / Total assets less current
liabilities). In the given case, the same has improved marginally from 1.78 to 1.79 times but
it is still below the industry average of 2.25 times (Belton, 2017).