R PLC Financial Analysis: A Business Performance Ratio Report

This report provides a financial analysis of R PLC using various financial ratios to assess the company's business performance. It covers profitability ratios (gross profit ratio, operating profit ratio), liquidity ratios (current ratio, acid test ratio), return on capital employed, debt to equity ratio, interest coverage ratio, dividend coverage ratio, and earning per share. The analysis interprets these ratios, comparing them to S Ltd where applicable, to evaluate the company's capital structure management, stock market performance, and ability to meet financial obligations. The report concludes that R PLC demonstrates healthy financial performance, effectively managing capital, paying finance costs and dividends, and providing value to shareholders, thereby enhancing its goodwill in competitive markets. The earning per share ratio indicates satisfactory stock market performance.

Business Performance

Table of Contents
Introduction......................................................................................................................................3
Ratio Calculation.............................................................................................................................4
Interpretation....................................................................................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
Books & Journals........................................................................................................................9

Introduction
Business finance is considered as an important components of an business organization to run the
financial operations in an effective manner. The major aim of business finance is to analyse the
amount of funds which has been availed by the owners of the business so that they can meet its
needs which may be required for different purposes. It can also be considered that the business
finance is highly efficient in dealing with all the future contingencies. In context to this report,
the financial analysis is done with the use of various financial tools for the purpose for the
business organization namely R plc. Therefore, the analysis of profitability, liquidity, capital
structure management and stock market performance is done to obtain effective results.

Ratio Calculation
Calculations of all the ratios are mentioned below: Profitability Ratios: These are basically those ratios which are utilized by the business
entities in order to assess the capacity of the firm to generate earnings in relation to the
revenue, operating costs and many more which can be done by using the data of a
particular financial period (Jessel and DiCaprio, 2018). It includes various ratios namely
operating profit ratio, net profit and gross profit ratio which helps in analysing the
profitability position of the company effectively.
Name of the formula Formula Calculation Result
Gross Profit Ratio Gross Profit / Net
Revenue * 100
10,880 / 26,245 *
100
41.46%
Operating Profit
Ratio
Operating Ratio / Net
Revenue * 100
5,313 / 26,245 * 100 20.24%
 Liquidity Ratios: It can be defined as an important and significant ratio which helps in
analysing the financial position of the company to deal with the short term financial
obligation in an effective manner. Therefore, it can be considered that all liquidity
ratios analyse a firm's ability to back up its short-term obligations specifically by dividing
current assets with that of current liabilities
Name of the formula Formula Calculation Result
Current Ratio Current assets /
Current Liabilities
15,089 / 9,466 1.594 : 1
Acid Test Ratio Current assets –
Inventory / Current
Liabilities
15,089 - 6,983 /
9,466
0.856 : 1
 Return on Capital Employed : It can be defined as an important ratio that helps in
extracting the baseline analysis of the performance of the business entity (McGuinness,

2019). It is an financial ratio that helps in revealing that whether the company is
performing good by generating good amount of profits.
Name of the formula Formula Calculation Result
ROCE EBIT/Capital
Employed
5,313 / 26806 – 9466
* 100
30.64%
 Debt to Equity Ratio: The debt-to-equity ratio can be considered as one of the important
financial ratio that indicates the relative proportion of shareholders' equity and debt which
has been used to financially back the assets of the company (Mavruk, 2019). It can also
be considered that this ratio is closely related to the concept of leveraging.
Name of the formula Formula Calculation Result
Debt to Equity Ratio Debt / Equity 2,800 + 9,466 /
14,540 * 100
84.36%
 Interest Coverage Ratio : The interest coverage ratio can be defined as the debt and
profitability ratio which is mainly used to ascertain the viability of a company who can
pay interest on the amount of debts which is outstanding. The interest coverage ratio is
calculated basically by dividing the earnings of the company before interest and taxes
(EBIT) by its interest expense for a given financial period.
Name of the formula Formula Calculation Result
Interest Coverage
Ratio
EBIT / Interest
Expense
5,313 / (980) 5.42%
 Dividend Coverage Ratio: Dividend coverage ratio can be defined as the ratio of
earnings of the company over the amount of dividend paid to the shareholders which has
been calculated as net profit or loss attributable in accordance to ordinary shareholders
which can be divided by the total amount of ordinary dividend (Silva, 2019). The

liquidity ratio disclosed that the respective business firm is effectively dealing with the
short term financial obligations in an efficient manner.
Name of the formula Formula Calculation Result
Dividend Coverage
Ratio
Profit after tax /
Preference dividends
2 1/5 2.20%
 Earning Per Share: Earnings per share can be defined as the monetary value of earnings
proportionate to outstanding share of common stock for a company.
Name of the formula Formula Calculation Result
Earning Per Share Net Income –
Preference
Dividends / shares
outstanding
26,245 – 1,380 /
3750
6.63%
Interpretation
From the above calculation, the interpretations have been made for all the specific ratios.
It can be seen that the ratios ascertained out of the financial statements of R Ltd have disclosed a
healthy financial performance. As compared to the other respective business organization
namely, S Ltd. The profitability ratios showed an effective results stating as gross profit and
operating profit ratio (41.46 & 20.28 ) respectively. Considering the return on capital employed
ratio, the capital structure management have been done in a very proper manner which is
disclosing that the organization is receiving good amount from the capital which has been
employed. The ratios obtained is approximately equal to 30.64%. Also, while considering the
interest coverage and the dividend coverage ratio, the performance of the company have been
highly satisfactory (Tala, 2021). The business organization is effectively able to pay for the
finance costs and the dividend to the potential shareholder so that a higher amount of value can

be delivered to them. Therefore, this has helped in increasing the goodwill of the company in the
competitive markets. Lastly, considering the earning per share ratio, the amount obtained was
quite adequate showing that the stock market performance have been highly satisfactory because
the amount obtained for earning per share is considered as an highly effective for the
shareholder's shares.

Conclusion
From the above report, it can be effectively concluded that the the element of accounting ratios
in the concept of business finance plays an important role in achieving the organizational goals.
It can also be considered that the business finance is highly efficient in dealing with all the future
contingencies. Also, it has been analysed that the capital structure management is important for
the business organization to efficiently management the allotment of the capital in an
organization to attain higher amount of returns. In addition to this, some ratios helped in
understanding and evaluating the stock market performance to achieve high amount of
profitability and liquidity in long run.

References
Books & Journals
Jessel, B. and DiCaprio, A., 2018. Can blockchain make trade finance more inclusive?. Journal
of Financial Transformation, 47. pp.35-50.
Mavruk, T., 2019. Do Men Outperform Women in Finance Classes?. Journal of International
Business Education (JIBE), 14.
Silva, M. R., 2019. Corporate finance, monetary policy, and aggregate demand. Journal of
Economic Dynamics and Control, 102. pp.1-28.
McGuinness, P. B., 2019. Risk factor and use of proceeds declarations and their effects on IPO
subscription, price ‘fixings’, liquidity and after-market returns. The European Journal
of Finance, 25(12). pp.1122-1146.
Tala, L., 2021. South Africa's Lending Infrastructure: Does it Facilitate or Constrain Access to
Credit Finance by Small and Medium Enterprises (SMEs)?. Journal of Public
Administration, 56(2). pp.276-287.