Financial Ratio Analysis Report: Performance Evaluation

This report presents a comprehensive analysis of financial ratios, including efficiency, profitability, liquidity, financing, and investor ratios, comparing data from 2017 and 2018. The analysis includes calculations for key metrics such as return on equity, gross profit, current ratio, debt ratio, and earnings per share. The commentary provides insights into the rationale behind each ratio and explains observed changes. The report highlights improvements in profitability and efficiency, while also noting changes in liquidity and financing metrics, offering a detailed evaluation of the company's financial performance over the specified period. The report also includes a discussion on the impact of changes in share prices and capital employed, along with the implications of these financial ratios. The report is designed to provide a clear understanding of the financial health and performance of the company. Students can find similar assignments on Desklib.

ACCOUNTING REPORT

1. RATIOS
Efficiency ratio
Ratio 2018 2017
Return on shareholder's equity 18.86 17.61
Return on capital employed 18.25 16.98
Total assets Usage 12.66 12.13
Non-current asset usage
Profitability ratio
Ratio 2018 2017
Gross profit % 69.4 69.9
Net profit% 15.1 14.27
Liquidity ratio
Ratio 2018 2017
Current ratio 2.79 2.9
Acid test ratio 1.96 1.91
Debtors collection period 63 days 51 days
Financing Ratios
Ratio 2018 2017
Debt ratio 11.3 6.25
Gearing ratio 1.56 1.41
Interest coverage ratio 318.38 395.8
Calculation of gearing ratio
Formula = Non-Current Loans / Non-current loans+ Share capital and reserves (equity)
2018 = 2.66/ 2.12 = 1.41
2017 = £1m / £1m 1+0£1m.2 = £1m/0.64 = 1.56
Investor's Ratio
Ratio 2018 2017
EPS 0.68 0.65
PE 0.55 0.68
Dividend ratio £66.60 / £1.69.4 = 60.83 / 164.4 =
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0.39 0.37
Calculations
2018 = £66.60 / £1.69.4 = 0.39
2017 = £60.83 / £164.4 = 0.37
2. A commentary on the rationale and explanation behind each ratio
Efficiency: The return on shareholder’s equity states that fractional changes recorded of 1.25
that might be increased due to increase in share capital or reserves and surplus this is also the
reason of increasing the capital employed capital employed increased by 1.27. However the
usage recorded as 0.53 times compare to last year.
Profitability ratio: gross profit ratio is increased by 0.5% compared to last year that
indicates towards the significant changes and variations. It is calculated that the profit for the
organisation increased due to revenues and formations in various terms.
Liquidity ratio: Current ratio for the year 2018 get increased by 0.11 due to increase in
current assets as cash, inventories. The quick ratio also recorded increased by 0.05 that might
be increase of cash and liquid assets.
Financing Ratio: As the calculations indicates towards the debt ratio of 11.3 for 2018 and
6.25 for 2017. It is increased by increasing in interest expenses.
Investor’s ratio: EPS ratio found increased due to increase in price of share for the year
2018 which is calculated as 0.03.
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