Financial Ratio Analysis for a Retailer: Interpretation and Recommendations

Part B

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Gross Profit Ratio...................................................................................................................1
Operating Profit Ratio............................................................................................................1
Net Profit Ratio.......................................................................................................................2
Return on Capital employed...................................................................................................2
Interest Coverage Ratio..........................................................................................................2
Debt to Equity Ratio...............................................................................................................3
Quick Ratio.............................................................................................................................3
Current Ratio..........................................................................................................................3
Inventory Turnover ratio........................................................................................................3
Debtor’s turnover ratio...........................................................................................................3
Creditor’s Turnover ratio........................................................................................................4
Return on Assets.....................................................................................................................4
Return on Equity.....................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
Books and Journals.................................................................................................................6

INTRODUCTION
The financial statement analysis is the approach of the accounting financial and management, the
purpose of this approach is to determine the importance and meaning of the financial data of the
company through its assets, liabilities, profits etc. This is useful in analysing the company’s
ability to pay its interest and debts (Daryanto, 2020). For the financial analysis the best technique
is to conduct ratio analysis- a tool used by the investors and lenders to make financial decisions.
The present report will outline the calculation different ratios of the retailer using their financial
statements.
MAIN BODY
Gross Profit Ratio
Gross profit Ratio= (Gross profit / Sales)*100
2018 2019 2020
=(22.4/62.5)*100 =(26.1/78.7)*100 =(31.8/95)*100
=35.84% =34.47% =33.47%
Interpretation: It is analysed that company has decline in gross profit which defines company
is losing its monopoly in the retail market. Higher the gross profit higher the company is stable.
In case of this company from in comparison of three years data every year there is decline of
approximately one percent in gross profit.
Operating Profit Ratio
Operating Profit Ratio= (profit before interest and tax / sales revenue)*100
2018 2019 2020
=(10.1/62.5)*100 =(10.1/78.7)*100 =(10.8/95)*100
=16.16% =12.83% =11.36%
Interpretation: From the above table it is analysed that company is earning less profit on its 1
unit of goods in year 2020 as compared to the year the 2018 and 2019. This is showing
company’s incapability to earn profits (Lindström, 2020).
1