Business Finance: Performance Evaluation of R PLC Using Ratios

This report provides a comprehensive analysis of R PLC's financial performance through the application of key financial ratios. It delves into profitability, assessing the gross profit ratio and comparing it to industry standards, highlighting areas of strength and potential improvement. The analysis extends to liquidity, examining the current ratio and identifying potential shortcomings in meeting short-term obligations. Furthermore, the report evaluates capital structure management through the debt-equity ratio, offering insights into the company's financial architecture and stability. Finally, it investigates stock market performance using earnings per share, revealing areas where the firm underperforms compared to industry averages. The conclusion emphasizes the need for continuous performance analysis and strategic adjustments to enhance the company's overall financial health and competitiveness, encouraging proactive measures to address identified weaknesses and capitalize on existing strengths.

Business finance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Profitability ratio..........................................................................................................................1
Liquidity ratio..............................................................................................................................2
Capital structure management ratio.............................................................................................2
Stock market performance ratio...................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business finance is one of the most crucial aspects as it helps a company to grow in an
appropriate manner in the industry so that it can sustain and survive in the market for a longer
time period and thus it has to be analysed and evaluated with utmost accuracy and precision
(Grashuis and Su, 2019). There are various ratios which help in evaluating and assessing the
overall performance of the company as a whole and thus below are the ratios of various elements
are calculated and interpreted in a relevant manner so that it can add value to the firm in the long
term which is R plc.
MAIN BODY
Profitability ratio
Gross profit ratio- The gross margin proportion is a financial rate which equates a
company's gross margins to its sales revenue. This statistic determines how lucrative a
corporation's stock or goods are when sold. To put it another way, the gross margin is the
proportion premium on goods compared to its price. This is the income from stock sales which
could be used to cover operational costs. The gross margins proportion is frequently mistaken
with the revenue margins proportion; however the two are not the same. Since it assesses the
efficiency of distributing inventories, the gross margins percentage only incorporates the price of
products supplied in its computation. The revenue margins percentage, on either extreme, takes
into account other costs (Phuoc, Kim and Su, 2018).
Calculation of gross profit ratio of R plc-
Gross profit ratio= gross profit/ sales* 100
= 10880/ 26245* 100
= 41.45551533625452
Interpretation- It can be said from the above that this ratio of the company is good
enough as compared to the industry as the one of the industry is 38 percent while the ratio of R
plc is hovering around 41 percent and thus it is very lucrative for the company and hence the
enterprise must strive in a better manner so that it can increase this ratio which can prove
beneficial for the firm in the long run. The reasons for the increased ratio could be increase in
sales and decrease in cost of goods sold.

Liquidity ratio
Current ratio- It is a stability and performance statistic which assesses a company's
capacity to repay short-term debts using present resources. Since short-term debts are due within
a year, the current ratio is a key indicator of stability. This implies that a corporation only has a
certain period of timeframe to generate the finances necessary to pay off such debts. In the near
run, current assets such as money, retained earnings, and investment accounts could be readily
turned into money. This implies that corporations with greater current assets would be capable of
paying off current obligations more readily whenever things fall due sans needing to liquidate
long-term income resources.
Calculation of current ratio of R plc-
Current ratio= current assets/ current liabilities
= 15089/ 9466
= 1.594020705683499
Interpretation- It can be said from the above that the current ratio of the firm is not at all
satisfactory as the industry average was 2:1 and thus it can be seen that the firm is lacking behind
and hence it is very important as well as crucial for the company to immediately look after the
issue so that it can manage and handle the short term liabilities in an impactful manner as the
ratio was just around 1.59:1 for the enterprise. The reasons for this can be increase in current
liabilities while the current assets could not cope up with that increase all together.
Capital structure management ratio
Debt-equity ratio- The D/E proportion enables shareholders to see how a company's
financial architecture is going, as well as how stable it is overall (Sanz Bayón and Vega, 2018).
Whenever a prospective buyer chose to buy in a firm, somebody must first understand the
corporate purpose. If the corporation's overall obligations exceed the owners' capital, the
investment will consider if to participate in the business or not, since so much indebtedness is
harmful for a business in the longer term. If the firm's overall debts are too small in comparison
to the owners' assets, the investment will reconsider participating in the business since the
ownership framework is not suitable to achieving economic power. If, on the other hand, the
business manages both internally and externally financing, the buyer might think that the
organization is a good fit for investing.
Calculation of debt-equity ratio of R plc-

Debt-equity ratio= debt/ equity
= 12266 /14540*100
= 84.36038514442916
Interpretation- It can be said from the above that the ratio is very satisfactory as it is
exceptionally good as compared to the industry average as the industry median is around 38
percent while the ratio of R plc is around 84 percent that is more than double and hence it can be
said that the performance is good enough and hence the reasons for it could be its stability in the
market.
Stock market performance ratio
Earnings per share- Earnings per share (EPS), also known as aggregate profit per unit, is a
financial potential metric which quantifies net revenue generated per existing single share. In
other terms, if all earnings were allocated to shareholdings at the conclusion of the year, this is
the value every co - owner could get. EPS is a metric which demonstrates how successful a firm
is from the perspective of its shareholders (Suzuki and Avellaneda, 2018).
Calculation of earnings per share of R plc-
Earnings per share= dividend paid/ number of equity shares
=1380/20000000
= 0.000069
Interpretation- It can be said from the above that the firm is not performing well at all as
the industry average is 21p but it is just giving 0.000069 and thus the reason behind it could be
lowered profit of the firm.
CONCLUSION
It can be concluded from the above that the firm must analyse the performance in the long
run so that it can perform better in the industry as the performance of the company is not at all
satisfactory.

REFERENCES
Books and journals
Grashuis, J. and Su, Y., 2019. A review of the empirical literature on farmer cooperatives:
Performance, ownership and governance, finance, and member attitude. Annals of
Public and Cooperative Economics. 90(1). pp.77-102.
Phuoc, L. T., Kim, K. S. and Su, Y., 2018. Reexamination of Estimating Beta Coecient as a Risk
Measure in CAPM. The Journal of Asian Finance, Economics, and Business. 5(1).
pp.11-16.
Sanz Bayón, P. and Vega, L. G., 2018. An outlook on the role of Finance Regulation under the
Fourth Industrial Revolution. Archives of Business Research. 6(10). pp.423-434.
Suzuki, K. and Avellaneda, C. N., 2018. Women and risk-taking behaviour in local public
finance. Public Management Review. 20(12). pp.1741-1767.