Return on Equity (ROE) Return on equity is a profitability measure which indicates how much profit the company has generates on the capital invested by the shareholders. It can be computed as net profit to shareholders’ equity. …
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There is a significant increase in ROE from 1.51% in 2008 to 14.3% in 2009. The reason behind this huge change is the amount of profits in two years. The company successfully generated ?5,432,000 in 2009 in comparison to ?446,000 only in 2008. Overall distributable profit/ loss from continued and discontinued operations is ?5,550,000 in 2009 and loss of ?446,000 in 2008. This net loss in 2008 is due to the fact that the group sustained loss from discontinued operation in 2008. Extraordinary Items As mentioned in the Note 11 in the financial statements, Games Workshop Group plc discontinued some operations in 2008 for which the group sustained a heavy loss of ? 1,186,000. The revenue from this operation was only ?1,308,000, and the total expenses were ? 2,414,000 excluding tax of ? 80,000. Contrary to this, the group in 2009, not only avoided loss on discontinued operation, but also successfully generated ?118,000 profit from these operations. Operating Profit Margin Operating profit margin has increased to 7.17% in 2009 from 2.31% in 2008. Major reason behind this increase is the boost in profit in 2009. The company earned ?9,014,000 operating profit as compared to ?2,552,000 in 2008. Although the sales have increased by 14% ((125,706-110,345)/110,345=14%), but the increase in operating profit is greater than the increase in revenue ultimately improving the operating profit margin. Gross Profit Margin The group has reasonably high gross profit ratio is both years. It has improved to 71.43% in 2009 as compared to 69.43% in 2008 which represent 2% change. The group has made efforts to control the cost of sales. It is very important to note that, there is a huge decline from gross profit to operating profit. Gross profit declined by 64.26% and 67.12% in 2009 and 2008 respectively and also the company is operating with significantly high operating costs. Group’s operating cost is ?84,244,000 and ?75,798,000 in 2009 and 2008 respectively. Assets Turnover Assets Turnover indicates how efficiently the company has used its assets in generating profits. It has increased to 1.79 times in 2009 from 1.63 times in 2008. This is because the sales volume has increased by a net of ? 15,361,000 in 2009 representing 14% increase, while the total assets have increased by a net of only ?2,414,000 which represents 2% increase. Interest Cover Due to improved profitability, Interest Cover has reached 5.17 times in 2009 from 1.55 times in 2008. There is a slight decrease in total finance cost in both years. It has decreased by a net of ?110,000. This is due to the fact that the group has lesser financial liabilities than previous years. The cost of loans and over draft has decreased from ?1,644,000 to ?1, 2,201,000 from 2008 to 2009 because the group has repaid ?5 million for the long term debt during the year. Balance Sheet Gearing Balance sheet gearing describes the degree to which the Group’s business activities are finance by the owner’s equity and the creditors (Ogilvie, 2008). It is good to see that the financial gearing has decreased from 37.6% to 24% in 2009. The reasons for this decrease are the increase in equity due to net profits and other reserves, and the decrease in financial liabilities because the group has repaid ?5 million against long term liabilities. Total financial liabilities decreased to ?12,002,000 in 2009 from ?17,792,000 in 2008. Similarly total equity increased to ?37,991,000 in 2009 from ?29,526,000 in 2008. Current Ratio Current ratio indicates the availability of the current assets to pay the current liabilities when they fall due (Brigham Eugene Foster, 2009). This is one of the commonly used indicators of the liquidity. In both years the group has very high
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