Financial Ratio Analysis
The Gross profit margin has increased since 2010 from 7.59% to 8.09% in 2013. This shows that the company has controlled its cost of sales expenses more effectively in the recent years. However, in terms of industry performance the company is below average because its gross profit is lower than the industry average of 10%. The net profit margin fluctuated from 2010 to 2013, with the highest value being 4.58% in 2011. The positive net profit margin indicates that the company managed to control its financing and operating expenses effectively in the four years (Sutton, 2004). The industry average net profit is 6%, indicating that the company is below average in terms of net profit. hence it performs poorly compared to other industry competitors. The ROCE is has decreased over the four years from 15.78% in 2010 to 11.63% in 2013. indicating that the company received less earnings for every unit of capital invested in the company in the recent years compared to the past years. However, it is above average in the industry in terms of utilization of assets to earn profits because its ROCE is more than the industry average of 8%. Generally, the company is doing well in terms of profitability.
Inventory days decreased from 2011 to 2013, indicating that the number of days that inventory remains in store has decreased. hence the company is managing its inventory successfully. Compared to the industry, the company is below average in number of inventory days because the average industry average is 60 days. This shows that the company manages its inventory more effectively than most companies in the industry. Receivable days are also lower than the industry average indicating that the company collects its debts faster than most companies in the industry. Payable days are also lower than industry average, showing that the company pays its credit faster than most companies in the industry.
Debt/equity ratio decreased from 0.96 to 0.82 in 2013 indicating that the equity could pay total liabilities more times in 2012 than 2013 using its equity. This is lower number of times compared to industry average, meaning that the company’s equity can pay off its liabilities faster than most companies in the industry (Sutton, 2004). The interest cover of decreased over the four years from 11.16 times in 2010 to 5.70 times in 2013. indicating that the company uses less debts to fund its total assets in the recent years. it is also below the industry average of 12 times. hence it uses less debt to fund its assets than most companies in the industry
The current ratio and quick ratio has also been increasing over the four years, and it is below the industry average. This means that the company is not able to meet its financial obligation as fast as other companies in the industry. Lastly, the earnings per share and dividends per share are more than the industry average, indicating that the company’s shares are more valuable and generate more earnings than most companies in the industry. EPS decreased from 0.56 in 2010 to 0.48 in 2013. So, the company’s shares generated fewer earnings over the years. The DPS increased from 0.21 in 2010 to 0.25 in 2013 indicating that the dividends paid to shareholders per share increased over the four years.
Sutton, T 2004, Corporate financial accounting and reporting, Prentice Hall, Harlow.
Financial Ratio Analysis