Financial Performance Analysis of Jackdow Ltd Company

This report analyzes the financial performance of Jackdow Ltd Company based on various ratios such as return on capital employed, net profit margin, gross profit margin, current ratio, acid test ratio, debtor collection period, creditor payment period, inventory turnover ratio, gearing ratio, dividend cover ratio, interest cover ratio, earning per share, and PE ratio. The evaluation is compared to the industry average and additional information is provided to enhance the evaluation.

Individual Report

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Ratio calculation..........................................................................................................................3
Evaluation of ratio........................................................................................................................7
Ratio evaluation in comparison to the industry average..............................................................8
Additional information that can enhance the evaluation.............................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial management is defined as the concept related to controlling and monitoring the
financial resources associated with the organisation. This report is based on the case study of the
Jackdow Ltd Company in respect to its financial performance. The organisation has been
engaged in sports retailing sector. Company offer its products over internet where customers can
buy the products offer by the organisation. This project would overlook at the financial
performance of the company. Henceforth, report will emphasis over financial performance of the
company on the basis of the calculation in respect to profitability, efficiency and other respective
ratios. Evaluation will also done in regard to the ratio calculated of the two financial years.
Comparative assessment will also done in this project with the current ratios of company with
industry average performance. Furthermore, this report would comparatively analysis the
financial performance of organisation against the industry average statistics.
MAIN BODY
Ratio calculation
Return on capital employed
ROCE = EBIT/ Capital employed
Capital employed = Total asset – current liability
2019
= 39280 (97280 – 43400 – 14680) / 161000 (231500 – 70500) * 100
= 24.4%
2020
= 53600 (115900 – 37650 – 24650) / 300600 (456500 – 155900) * 100
= 17.83%
Net profit margin
= Net profit / sales * 100
2019
= 34600 / 386400 * 100
= 8.95%
2020
= 26600 / 764200 * 100

= 3.48%
Gross profit margin
= Gross profit / sales * 100
2019
= 97280 / 386400 * 100
= 25.17%
2020
= 115900 / 764200 * 100
= 15.16%
Current ratio
= Current asset / current liability
2019
= 96500 / 70500
= 1.37
2020
= 144500 / 155900
= .93
Acid test ratio
= current asset – inventory / current liability
2019
= 96500 – 51200 / 70500
= .643
2020
= 144500 – 85300 / 155900
= .38
Debtor collection period
= Debtor / sales * 365

2019
= 29700 / 386400 * 365
= 28.06 days
2020
= 55700 / 764200 * 365
= 26.60 days
Creditor payment period
= Trade payable / cost of sale * 365
2019
= 52300 / 289120 * 365
= 66 days
2020
= 131100 / 648300 * 365
= 73.8 days
Inventory turnover ratio
= COGS / Average stock
Average stock = opening stock + closing stock / 2
2019
= 289120 / 50600 (50000 + 51200 / 2)
= 5.71
2020
= 648300 / 68250 (51200 + 85300 / 2)
= 9.5
Gearing ratio
= Long term liability / capital employed * 100
2019
= 20000 / 161000 (80000 + 25000 + 36000 + 20000) * 100
= 12.42%

2020
= 100000 / 300600 (120000 + 30000 + 50600 + 100000) * 100
= 33.26%
Dividend cover ratio
= Net income / dividend declared
2019
= 34600 / 5000
= 6.92 times
2020
= 26600 / 6000
= 4.43 times
Interest cover ratio
= EBITDA / Interest expense
EBITDA = Earning before interest, tax, depreciation and amortization
2019
= 39200 (97280 – 43400 – 14680) / 1400
= 28 times
2020
= 53600 (115900 – 37650 – 24650) / 7000
= 7.66 times
Earning per share
= Net income – preferred dividend / number of stock
2019
= 34600 – 5000 / 80000
= .37
2020
= 26600 – 6000 / 120000
= .18

PE Ratio
= Share price / earning per share
2019
= 5.25 / .37
= 14.19
2020
= 4.8 / .18
= 26.67
Evaluation of ratio
The above mentioned calculation project various ratios that are associated with different
financial aspect of the company. The organization has entertain more than 24% return on the
capital employed where as in the year 2020 the capital employed return went down to
approximately 17% that indicate that company's performance could go down in the year 2020 as
compare to its previous year performance. Return of capital employed is the indicator of the
financial performance of organisation against the capital employed entertained by the
organisation. This project also calculated about the net profit ratio of company. Jackdow Ltd
Company could address the net profitability of 8.95% where as the organisation could witness
the net profit margin of 3.48% in the year 2020. The significant decrease in the net profitability
of company indicate that organisation is considering over expenses in order to channelise the
business operation's (Keshavarz-Ghorabaee and et.al., 2018). Net profitability is the true
indicator about the business performance as it not only comprises the trading profitability of
company along with it also include the operational expenses that are indirect in nature and do not
carry any involvement in the selling operations at a direct level. Due to over expenses in the year
2020 as comparison to the year 2019 the significant downfall has been witnessed by the
organisation in respect to the net profit of the company.
Gross profit is the indicator of the gross profitability entertained by the organisation in
order to sale the company's products. Gross profit margin of company in the year 2019 was
25.17% which also decreased in the year 2020 as the company could entertain only 15.16% of
gross profit margin. This denote about the reduced profitability of company against the trading

function. IT is further indicate towards the decline in sales turnover of company. Overall
performance of company is strategically referenced in gross profit of company. Current ratio of
company was monitored the 1.37 where as in the year 2020 the ratio is .93 that further indicate
that company's current liability could become more aggressive in comparison to the current
assets of the company. Liquidity position of company could also go down from .643 in the year
2019 to .38 in 2020. Debtor collection period was 28.06 days which also could reduce by 26.6
days. This indicate that company is taking less time to recover its debtors (luza, 2017). Creditor
payment period of company could rise from 66 days to 73.8 days that indicate that company'
liquidity position could go down which also required the company to take more time to clear its
dues. Other ratios are also denoted about the reduces performance of the company in the year
2020 as compare to the year 2019. IT can be indicated from the overall ratio assessment that
company could not perform effectively as compare to the year 2019 that also resulted into
reduces performance of company in the year 2020 (Kim and Im, 2018). Inventory turnover could
also go down from 5.71 to 9.5. Dividend cover ratio was 6.92 times which also come down to
4.43 times. The low income of the company also resulted into reduced earning per share. The
EPS of company was .37 which also came down to .18. All the ratios indicate that organisation
could not perform as effective as compare to the previous financial year.
Ratio evaluation in comparison to the industry average
Return on capital employed recorded as 17.83% where as the industry average is 18.5%.
Net profit margin of company identified as 3.48% which is magnificently lower than the industry
average margin of 15%. Gross profit ratio of company is 15.16% where as the industry in
generating the gross profit margin of 35.23%. Current ratio in industry is sustaining at 1.9 where
as the ratio company is considering is .93. Liquidity ratio of company is also lower than the
industry average ratio (Ali and et.al., 2018). IN the industry other companies requires 30 days to
collect amount from debtors on the other hand Jackdow Ltd Company is needed 20.6days only
that is a positive aspect about the organisation. Creditors are allotting 49 days to repay the
amount where as company is allowing 73.8 days that indicate that company is not able to clear
its dues. Inventory turnover of company is 9.5 on the other hand industry average inventory
turnover is 4. Company's gearing ratio is 33.26% on the other hand industry average identified as
32%. Dividend cover ratio of company is calculated as 4.43 times where as industry is
considering the dividend cover ratio as 6 times. Interest cover ratio in industry is 15 times as

compare to the company's own average as 7.66 times. Company could generate earning per share
is .18 where as the industry average is .36. PE Ratio of the industry is 26 and of the company is
26.67. All the above figures denote that company is not able to perform as effective as other
companies operating in the same industry (Caudron and et.al., 2018).
Ratio analysis Usefulness and limitation
Usefulness: Ratio analysis is used as a powerful tool of financial analysis. It shows the
numerical or quantitative relationship between figures of financial statement to know the strength
and weakness of the firm and knows the current financial position performance (Bednarek,
2016). Followings are the advantages of the Ratio analysis:
 Forecasting and planning: computing ratio analysis of change in cost, sales, profits and
other facts by taking last few financial year of the company. This help the company to
forecast and plan the current year activities (Nurkasheva, and et.al., 2020).
 Budgeting: Budgets are prepared for the various department by the helps of ratio
analysis. For example sales budget is prepared on the basis of past sales.
 Cost effective: ratio analysis maintain the cost and performance of different division for
the company by analysing the previous financial data.
 Inter firm comparison: it shows the efficiency and inefficiency of the two different firm
that can be compared and measured to improve the performance of the firm.
 Operation efficiency: Efficiency of management and utilization of asset are indicated by
ratio analysis. Proper utilization of assets results in solvency of the firm depend on the
sales revenue (Chalu, Lubawa, 2018).
Limitations
 Limitation of financial statement: Ratio are analysis which are recorded in the financial
statement but this statement can be suffered from numbers limits and may affect the
quality of analysis and the ratio analysis cannot become fully trusted.
 Historical information: financial statements are the historical information which don no
reflect the current condition of the firm and is not useful to predict the future and analysis
the future condition occur in the company.
 Different accounting policies: Two different firms carries different accounting policies
regarding valuation of inventories, charging depreciation make the data and accounting
ratio create differences and non comparable between the two companies.

 Lack of standard of comparison: there is no fix standard of comparison of the ratios.
For an instance current ratio is said to be ideal if current assets are twice of current
liabilities. But this is not an ideal comparison between the two as there may be different
scenario with the firms. So it can be said that if the current assets is slightly more than
current liabilities than it may be perfect (Lamprecht, and Guetterman, 2019).
 Quantitative analysis: ratios are based on the quantitative analysis only and qualitative
factors are ignored while calculating the ratios.
Additional information that can enhance the evaluation
The above calculated ratios are enough to assess about the financial performance of the
company. There are plenty of other ratios also available that can be calculated like asset turnover
ratio and many such ratios that also evaluate the overall performance of company in different
manner (Murphy and et.al.,2016). IT can be indicated that company's liquidity position is not
much effective that also influence the ability of the organisation to clear its dues. Company is
taking moire time to clear its creditors that is challenging to the brand value of company which
further affect the performance of the organisation.
CONCLUSION
This report analysis the performance of the company for the financial year 2019-2020. Which
shows the performance of 2019 is much better than performance in financial year 2020. Whereas
compare to industry standard the company also not perform above the standard.
Recommendation: the company should control their indirect expenses which result in
better performance and net profit increased. Whereas the company should focus on their
increasing current asset and control the current liabilities which improve the current ratio of the
company.

REFERENCES
Books and Journals
Ali, M. S. and et.al., 2018. Channel estimation and peak-to-average power ratio analysis of
narrowband internet of things uplink systems. Wireless Communications and Mobile
Computing, 2018.
Bednarek, P., 2016. Evaluating the usefulness of quantitative methods as analytical auditing
procedures. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu. (434). pp.9-
18.
Caudron, C. and et.al., 2018. Seismic Amplitude Ratio Analysis of the 2014–2015 Bár arbunga‐
Holuhraun Dike Propagation and Eruption. Journal of Geophysical Research: Solid
Earth. 123(1). pp.264-276.
Chalu, H. and Lubawa, G., 2018. Using financial statements to analyze the effects of multiple
Borrowings on SMEs financial performance in Tanzania. Inter. J. Res. Methodol. Soc.
Sci. 1(4). pp.87-107.
Keshavarz-Ghorabaee, M. and et.al., 2018. An extended step-wise weight assessment ratio
analysis with symmetric interval type-2 fuzzy sets for determining the subjective
weights of criteria in multi-criteria decision-making problems. Symmetry.10(4). p.91.
Kim, D. and Im, M., 2018. What makes red quasars red?-Observational evidence for dust
extinction from line ratio analysis. Astronomy & Astrophysics. 610. p.A31.
Kluza, K., 2017. Risk assessment of the local government sector based on the ratio analysis and
the DEA method. Evidence from Poland. Eurasian Economic Review. 7(3). pp.329-351.
Lamprecht, C. and Guetterman, T.C., 2019. Mixed methods in accounting: a field based
analysis. Meditari Accountancy Research.
Murphy, E. K. and et.al.,2016. Signal-to-noise ratio analysis of a phase-sensitive voltmeter for
electrical impedance tomography. IEEE transactions on biomedical circuits and
systems. 11(2). pp.360-369.
Nurkasheva, N., and et.al., 2020. Current Issues of Accounting and Evaluation of Financial
Instruments in Accordance with International Financial Reporting Standards. Journal of
Talent Development and Excellence. 12(1). pp. 6026-6033.