Critical Analysis of T Plc's Financial Ratios: Business Performance

This report presents a critical analysis of T Plc's financial ratios to assess its business performance and investment potential. The analysis covers key areas such as profitability, liquidity, working capital management, and stock market performance. Profitability ratios indicate a favorable position compared to industry averages, while liquidity ratios show a declining trend. Working capital management reveals mixed results, with high receivable days and low inventory holding days. Stock market performance, particularly the price-earnings ratio, demonstrates positive results. Despite some concerns about liquidity and working capital, the report concludes that the positive profitability and market performance indicators suggest the company is a suitable investment target. The document is available on Desklib, a platform offering a wide range of study resources, including past papers and solved assignments.

BUSINESS PERFORMANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Profitability..................................................................................................................................3
Liquidity......................................................................................................................................3
Working capital management......................................................................................................4
Stock market performance:..........................................................................................................4
Decision of investment................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Financial ratio are the reflection of the company’s financial health and state. With the
analysis of the company’s financial ratio its financial state would being able to determined
(Sadi’ah, 2018). This report will discuss a critical analysis of the financial ratio of T Plc along
with a justification regarding making of investment.
MAIN BODY
Profitability
It is one of the important aspect with regard to T plc and any other organization. With the
aspect of profitability it would be easy to determine that whether the company is generating
adequate profit or would be able to run its business or not (Nalurita, 2017). In case of T Plc, the
gross profit ratio shows an inclining state i.e. 39 in 2018, 40 in 2019 and 40 in 2020. There is a
same situation in case of Net profit ratio which also shows an inclining state i.e. 5.8 in 2018, 5.9
in 2019 and 6.05 in 2020. However, while making a comparison with the industry coverage it
would be analysed that the prevailing ratio was 37 (gross profit) and 4 (Net profit) which is high
in case of T Plc. This means that it would be right to state that the profitability of the T Plc is
good and adequate. In case of Return on shareholder's fund of T Plc it would be analysed that the
ratio was showing an inclining state i.e. in 2018 it was 15 which raise to 15.25 in 2019 and 16 in
2020.
In the same way with regard to the case of Dividend yield ratio a moderate result are being
observed i.e. 3 in 2018, 4 in 2019 and 3 in 2020. However, when it would be compared with the
industry average it can be analysed that the rate is 12% in case of return on shareholder's equity
and 3 % in case of dividend yield ratio. This means that the rate of ratio of T Plc with respect to
shareholder's equity and dividend yield there is a high and equal percentage. This means that the
T Plc's profitability status would be considered as adequate and favourable with respect to
industry average.
Liquidity
Liquidity refers to the capacity of the company to make payment of the short term liability
with the presence of its cash and liquid assets. It also measure the efficiency of the company that

how easily it can make repayment of its short term liability (Lalithchandra, 2021). While making
an analysis of current ratio of T Plc it was observed that the ratio of the company is declining i.e.
1.1: 1 in 2018, 0.95: 1 in 2019 and 0.8: 1 in 2020. this means that the company's current assets
are declining in comparison with the current liability. In case of quick ratio it can be analysed
that this ratio was also declining i.e. in 2018 it was 0.65: 1, in 2019 it become 0.55: 1 while in
case of 2020 it become 0.4: 1. when these ratio would be compared with the industry prevailing
ratio then it can be observed that the current ratio as per industry rate is 1.05: 1 and quick ratio is
0.5: 1. this means that the liquidity position of T Plc is declining and low while making it
compared with the industry prevailing rate. Thus, it can be critically analysed that the liquidity
state of the company is not showing a positive outcome and state.
Working capital management
This is also an important range of ratio that shows the ability of the company with regard
to the management of its daily operation. It is an important ratio because with the help of this
ratio company would able to make judgement of its operational capacity (Boisjoly, Conine Jr and
McDonald IV, 2020). While making an analysis of inventory holding days it can be observed
that the number of days are moderate to raising i.e. 13 in 2018 and 2020 while 12 in 2019. In the
same while making an analysis of receivable days it can be seen that the days are showing
declining to constant state i.e. it was 8 in 2018 which decline and become constant to 6 in 2019
and 2020.
In case of making a comparison with the industry average it can be analysed that the
number of receivable days are 2 while inventory holding days are 19. Thus, it can evaluate that
the performance of T Plc with regard to receivable days is high and in case of inventory days it is
low. Thus, it can be critically analysed that the working capital of the company is not showing an
adequate outcome.
Stock market performance:
It is very important for the companies that their performance in the stock market would be
adequate so that they can along with performing their business would also able to serve in the
market (Agustianawati and Puspitasari, 2018). While making an analysis of the Earning per
share ratio it can be seen that the rate of EPS is raising from 23 to 25p in 2018 to 2020. In case

of Price earnings ratio it would be evaluated that the rate of ratio is showing an inclining phase
i.e. 20, 22 and 25 in 2018, 2019 and 2020. While making a comparison with the industry average
it can be interpreted that the price earnings ratio of the industry is 22. This means that the ratio of
the T Plc is marking up to the industry. Thus, it would be right to state that the T Plc is showing a
positive result with regard to this ratio.
Decision of investment
As majority of ratio and aspect of T Plc are showing a positive results including the Stock
market performance, profitability aspect which would states that the company is showing a
positive results. However, on contrary to this it is also analysed that the liquidity and working
capital of the company is not showing positive result which indicate the inefficiency of the
company. However, as the decision of investment is based on the aspect of the profitability as
well as market performance and with the persistence of positive results in regard to T Plc with
respect to ratio so it would be right to stat that the investor would make investment in the
company.
CONCLUSION
From the above report it would be concluded that financial ratio is the important aspect of
the analysis of the financial health. With its analysis it would be easy to make decision regarding
investment in the company.

REFERENCES
Books and journals
Agustianawati, P. and Puspitasari, R., 2018. Stock Performance Analysis. In International
Conference On Accounting And Management Science 2018 (pp. 107-115).
Boisjoly, R.P., Conine Jr, T.E. and McDonald IV, M.B., 2020. Working capital management:
Financial and valuation impacts. Journal of Business Research. 108. pp.1-8.
Lalithchandra, B.N., 2021. Liquidity Ratio: An Important Financial Metrics. Turkish Journal of
Computer and Mathematics Education (TURCOMAT). 12(2). pp.1113-1114.
Nalurita, F., 2017. The effect of profitability ratio, solvability ratio, market ratio on stock
return. Business and Entrepreneurial Review. 15(1). pp.73-94.
Sadi’ah, K., 2018. The Effect of Corporate Financial Ratio upon the Company Value. The
Accounting Journal of Binaniaga. 3(02). pp.75-88.
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