Evaluation of Performance of Pro Bio plc in Terms of Different Types of Ratios

FINANCIAL
MANAGEMENT AND
CONTROL

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part (A)........................................................................................................................................3
1. Evaluation of performance of Pro Bio plc in terms of different types of ratios......................3
2. Calculation of working capital cycle.....................................................................................10
3. Limitation of ratio analysis for both cross-sectional and time-series comparisons..............12
Part (B) .....................................................................................................................................13
1. Use of different types of investment appraisal techniques....................................................13
Part (C)......................................................................................................................................17
2. Use of various kinds of traditional budgeting methods........................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................18

INTRODUCTION
In the current business scenario, it is essential to make an effective utilisation of
resources so that level of profitability can be increase. The term financial management can be
defined as a way of assessing need of financial resources in companies and providing funds from
best resources. In this aspect controlling of monetary funds is also essential so that it can be
allocated to different activities in a better way (Doinea and Lapadat, 2012). Main objective of
report is to assessing the performance of given company. The project report is categorised into
different parts in which part A, covers information about various ratios, and working capital
cycle. As well as part B, includes description of investment appraisal techniques and part C,
contains information about role of traditional budgeting methods.
MAIN BODY
Part (A)
1. Evaluation of performance of Pro Bio plc in terms of different types of ratios.
 Profitability ratio- This is a type of ratio which is calculated by business entities in order
to assess efficiency of generating revenues (Chan, Chau and Chan, 2012). Herein, below
some ratios are mentioned that are as follows:
(I) Gross profit ratio = Gross profit / Net sales * 100
All data in £000 except gross
profit ratio
2018 2019
Gross profit 9850 9485
Net sales 17890 19345
Calculation 9850/17890*100 9485/19345*100
Gross profit ratio 55.06% 49.03%

GP ratio (in percentage)
46
48
50
52
54
56 55.06
49.03
2018
2019
Analysis- On the basis of above presented graph, this can be find out that above company has
different amount of gross profit ratios in both year 2018 and 2019. In year, 2018 their gross
profit ratio was of 55.06% which reduced in next year till 49.03%. It is indicating that company's
efficiency of gaining gross revenue has been reduced in year 2019. The reason of decreasing in
this ratio is increasing in value of cost of sales in year 2019 as compare to year 2018.
(ii) Operating profit ratio = Operating profit / net sales * 100
All data in £000 except
operating profit ratio
2018 2019
Operating profit 6610 5710
Net sales 17890 19345
Calculation 6610/17890*100 5710/19345*100
Operating profit ratio 36.95% 29.52%
Operating profit ratio (in percentage)
0
10
20
30
40 36.95
29.52
2018
2019
Analysis- On the basis of above presented graph, this can be find out that above company has
different amount of operating profit ratios in both year 2018 and 2019. In year, 2018 their
operating profit ratio was of 36.95% which reduced in next year till 29.52%. It is indicating that
company's efficiency of gaining operating profit has been reduced in year 2019. The reason of

decreasing in this ratio is increasing in value of operating expenses in year 2019 as compare to
year 2018.
(iii) Net profit ratio = Net profit / net sales * 100
All data in £000 except net
profit ratio
2018 2019
Net profit 1945 580
Net sales 17890 19345
Calculation 1945/17890*100 580/19345*100
Net profit ratio 10.87% 3.00%
Net profit ratio (in percentage)
0
2
4
6
8
10
12 10.87
3
2018
2019
Analysis- On the basis of above presented graph, it can be find out that there is huge gape in net
profit margin in both of years. Like in year 2018, the net profit ratio was of 10.87% which
reduced and next year till 3.00%. It is so because of lower amount of net profit in year 2019 that
was of £580000 while in year 2018, its value was of £1945000. So in comparative manner,
company's performance is poor in year 2019.
 Liquidity ratio- This is a type of ratio which is calculated in order to evaluate liquidity
position of companies in terms of paying short term debts (Nicolăescu, 2013). It consists
two types of ratios such as:
(I) Current ratio = Current assets / current liabilities
All data in £000 except
current ratio
2018 2019

Current assets 3790 4130
Current liabilities 2555 3310
Calculation 3790/2555 4130/3310
Current ratio 1.48 times 1.25 times
Current ratio (in times)
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5 1.48
1.25 2018
2019
Analysis- On the basis of above presented graph, it can be find out that company's current ratio is
not in ideal condition. This is so because the ideal current ratio is 2:1 and their ratio is below it.
Like in year 2018, the current ratio was of 1.48 times which reduced in next year and became of
1.25 times. This is so because company's current assets are increasing with lower percentage but
current liabilities are increasing with huge margin in year 2019.
(ii) Quick ratio = Quick assets / current liabilities
All data in £000 except quick
ratio
2018 2019
Quick assets 2790 2650
Current liabilities 2555 3310
Calculation 2790/2555 2650/3310
Quick ratio 1.09 times 0.80 times