Financial Performance - Essay Example

Moreover, the comparative analysis of ratios has been done by comparing the ratios of 2009 and 2010. Finally, this report discusses the advantages and disadvantages of ratios analysis. RATIOS ANALYSIS Profitability Ratios a. Net profit percentage or net margin The net profit percentage or net margin of the company for the years 2009 and 2010 are 30.1205% and 21.9917% respectively. The value has been calculated by dividing the net profit with sales. The net margin of company has declined because of the decline in sales and net profit which shows a significant decline in profitability of CUERO in 2010. b. Gross profit percentage or gross margin The gross profit percentage or gross margin has been calculated by taking the ratio between gross profit and sales and the calculated values for the years 2009 and 2010 are 49.

3976% and 44.617% respectively. It shows the decline in profitability because of the decline in sales and increase in cost of sales from ?0.00494 profit per ?1 of sales to 0.00446 ?1 of sales. c. Return on capital employed The return on capital employed is the ratio between net profit and capital employed. The calculated values for the company for years 2009 and 2010 are 3.9765% and 3.7105% respectively. . The asset turnover the company has remained almost same for the two years. Liquidity Ratios/Gearing Ratios a.

Current Ratio The current ratio is the ratio of long term debt to capital employed and the calculated values for 2009 and 2010 are 1.1667 and 1.1597 respectively. The ratio shows that the short-term liquidity of CUERO Ltd has remained same because the percentage increase in liabilities is almost equal to percentage change in current assets. b. Quick Ratio or Acid Ratio Quick ratio or acid ratio is the ratio between current assets less stocks to current liabilities. In 2009 and 2010, the calculated values for the company are 0.

6818 and 0.5948 respectively. The decline in quick ratio predicts that in 2010 the process of conversion of stock to cash slowed down. Gearing ratio The ratio between long term debt and capital employed is gearing ratio and the calculated values for the company for 2009 and 2010 are 53.47% and 56.59% respectively. The gearing ratio of company has increased significantly in 2010 which shows the increase in the long-term debt of the company due in more than one year. Efficiency of Asset Utilisation Ratios a.

Sales to Fixed Assets Ratio The sales to fixed assets ratio has increased from 0.9432 to 0.9511 in 2009 and 2010 respectively which shows that in 2009 company achieved ?0.9432 per ?1 of fixed assets and in 2010 company has achieved ?0.9511 per ?1 of fixed assets. This decline shows a small decline in efficiency of asset utilisation because the fixed assets have increased and sales of company have declined. b. Stock Holding Period Stock holding period is the ratio between stock and cost of sales and the calculated values for the company for 2009 and 2010 are 139.

05 and 173.95 respectively. The stock holding