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Report On GEC (General Electronic Company) - Ratio Analysis

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Added on  2020-02-05

Report On GEC (General Electronic Company) - Ratio Analysis

   Added on 2020-02-05

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FINANCE AND DECISION-MAKING1
Report On GEC (General Electronic Company) - Ratio Analysis_1
Table of ContentsINTRODUCTION................................................................................................................................3ASSESSMENT 1..................................................................................................................................31. Profitability and liquidity ratios....................................................................................................32. Analysis and interpretation...........................................................................................................33. Critically evaluate the use and limitations of financial ratios.......................................................4ASSESSMENT 2..................................................................................................................................4Project evaluation.............................................................................................................................5Appraising the financing section......................................................................................................6Critically analysing the challenges in M&A....................................................................................6CONCLUSION....................................................................................................................................7REFERENCES.....................................................................................................................................8APPENDIX..........................................................................................................................................9Appendix 1 Calculation of profitability and liquidity ratios............................................................9Appendix 2 Calculation of net present value....................................................................................92
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INTRODUCTION In the highly uncertain and competitive market place, companies directors and managers arerequire to analyze the financial position and performance of the business so as to make rightdecisions at right time for deriving success. The present report aims at making profitability andliquidity analysis of GEC (General Electronic Company) through ratio analysis. Moreover, it willalso apply modern discounted capital budgeting techniques like NPV and IRR for the projectevaluation to assess viability. ASSESSMENT 11. Profitability and liquidity ratiosRatio analysis is an strategic financial analysis (SFA) technique that indicates magnitude ofrelationship between two components of the financial accounts. As per the scenario, GEC Plc is aleading company that is involved in supplying electronics and engineering goods to the consumers.Its manager can examine the financial performance of the firms through interpreting various ratios.Profitability ratios are the measurement of percentage of return on total sales revenues and enablemanagers to determine that whether business performed well or not (Hwang and Yoon, 2012). Inthis, gross profit percentage is often used to measure the percentage of GP on total turnover whereasnet profit percentage is used to determine the NP % on total sales revenue. On the contrary, liquidityratios are used to quantify GEC Plc’s capability to pay suppliers and other short-term liabilities onright time. Current ratio measure relationship between current assets and current liabilities whereasquick/acid test ratio measures liquidity performance of the firm ignoring inventory balances. 2. Analysis and interpretationProfitability ratiosGross profit ratio: GEC’s GP ratio shows a continuous decreasing trend from 49.57% to29.27% in the year 2016. High fluctuations in the turnover over the period due to volatile consumerdemand, inflation and competitors offerings is the main reason behind decreasing net profitability.Although, cost of the goods sold shows a declined trend, still, high % fall in turnover decreased thegross profitability of the firm and indicates that GEC gained less gross return on total sales. Net profit ratio: In2014, firm’s NP ratio got up to 10.25% indicates that company generatedbetter return on sales, however, thereafter it dropped down to -5.23% exhibit loss due to excessiveoverheads because of poor control (Financial ratio of General Electronic Company, 2013). Afterthis, in 2016, it rose up to 6.61% demonstrates thatfirm gathered high return this year on total salesrevenue and indicates good performance.3
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