Financial Reporting: Ratio Analysis Report - Performance Analysis

This report provides a comprehensive analysis of financial ratios, focusing on profitability, liquidity, efficiency, and gearing. It examines key ratios such as gross profit margin, operating profit margin, assets turnover ratio, return on capital employed (ROCE), return on equity (ROE), current ratio, acid test ratio, debtors turnover, creditors turnover, gearing ratio, and earnings per share (EPS). The analysis includes comparisons of performance over time and discusses the implications of these ratios on the company's financial health and operational efficiency. The report also addresses the company's pension liability and provides insights into its financial risk management. Finally, it offers a clear understanding of the company's financial position, highlighting areas of strength and potential improvement. The report is supported by references to relevant financial resources.

FINANCIAL REPORTING

TABLE OF CONTENTS
Ratio Analysis..................................................................................................................................1
REFERENCES................................................................................................................................3

Ratio Analysis
Profitability Ratios
With the help of profitability ratios investors and company can assess ability of company of
generating revenues relative to operating cost, revenue, assets & shareholder's equity. It assess
ability of company to generate profits to company and value for shareholdings using existing
assets (Profitability Ratios, 2019).
Gross profit margin – It shows sales in percentage exceeding cost of goods sold. It analyse the
performance of company to generate sales and amount left after meeting all direct costs incurred
for manufacturing given product. Gross profit margin of company has declined from previous
year that shows sales revenues has not rose as against the manufacturing costs of products.
Operating profit margin – operating margin of company has increased from previous year
despite of fall in GP margin. It can be assessed that company has managed operations very
efficiently and improvised the existing operations result in increase in increase in margins as
against sales.
Assets turnover ratio – It assess ability of company in generating sales from assets comparing
average total assets against sales. This has gone down this may be due to assets have not
generated sales as against them.
Return on Capital employed – ROCE of company in year was 2017 was 11.5% where in 2018 it
has gone down to 9.7%. It depicts efficiency of company in generating profits against the capital
employed. Decrease in ROCE can be due to sale of unnecessary assets but decrease shows that
operations of company as against capital employed are not able to generate enough returns or the
manufacturing cost of company have raised in comparison to its sales. For increasing the return
company should increase its sales and manage its operations by making new plans and strategies
that enhance the business operations.
Return on Equity – Return generated over investment of shareholders in each share. ROE of
company has decreased from previous year. Unite's performance has declined that shows that
company is not able to provide enough return on the investment of shareholders managing its
operations. Revenues and profits of company have increased from previous year than also the
return over equity have decreased as earnings per share of company have decreased because
company has issued new shares of company.
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Current Ratio - Current ratio of company has raised to 1.5 times from 0.88. It can be analysed
that company has strengthened it position in current assets. Company is able to meet it short term
liabilities using current assets. Increase in current asset is due to increase in cash and cash
equivalents is considerable in comparison to previous year.
Acid test ratio – It has raised from previous year. It assess liquidity position of company after
deducting inventory from current assets. The liquidity position of company is strong after
deducting inventory from current assets. The rise is seen due to increase in cash and cash
equivalents of company.
Efficiency Ratio – Efficiency ratio analyses performance of company using internal assets and
liabilities. Debtors turnover of company has decreased from previous year. Company is not
effectively managing its cash credits given to customers where it should be least so that money
can be rotated in company. Creditors turnover has also decreased which means company is
having time to repay its debt. Decrease of 38.29% is significant company high turnover can
affect image of company , where it is beneficial for company as money can be used in other
operations that will increase the efficiency of operations.
Gearing ratio - It shows financial risks shows financial risks associated with business as excess
of debts leads to financial issues. Gearing ratio has decreased that shows company has reduced
its debts thus it has reduced financial risks of company. Company should have low gearing ratio
managing its debt.
EPS - Earnings on each share of company. Profits of company are distributed in number of
shares. As per the reports of unite, company is having EPS of 95.3 p where on calculation it is
coming to 92.92 per share. Difference may arise if minority interest is not calculated properly or
the total share base of company taken is higher than the actual ones. Revenues of company may
be different than that from reports.
Why units are not having pension liability ?
Pension liability refers to difference between amount that is due over retirees and money
company is having for making those payments. Company is not having pension liability as
member receive cash pension allowances and also only element is salary that is pensionable by
the company. Company is having enough money for making payments of pensions of company
as against amount due. Therefore the units do not have pension liability.
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REFERENCES
Online
Profitability Ratios. 2019. [Online]. Available through :
<https://corporatefinanceinstitute.com/resources/knowledge/finance/profitability-ratios/>.
[Online]. Available through : <>.
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