Ratio Analysis for Tasso Plc - Coursework Example

Ratio Analysis Ratio Analysis EXECUTIVE SUMMARY The purpose of preparing this report is to provide a financial appraisal of Tasso plc. By that, the shareholders and the stakeholders can know the financial position of the company. The investors and customers of the company will use the information in rating the company’s performance over the last previous years. This will help management in knowing their strengths and weaknesses and will adopt mechanisms to take advantage of the opportunities and minimize the threats that may exist. The key conclusions shown in this report are that, Tasso plc is very strong financially and that it is growing steadily in the market position this has been possible because of the huge fixed asset in property. Another reason is due to their dismissive approach towards law and regulations. This approach has resulted in an exceptionally good financial performance and efficiencies. Based on the available financial data of Tasso plc all the financial indicators are excellent with the exception of the liquidity. INTRODUCTION The most important thing in management is to find, evolve and assess involvement into possibilities that may be out there to develop and improve the company’s financial position. In so doing, the management can be able to assess various investment opportunities considering the risk that may be involved and assess the liquidity of the company. It is possible to determine the financial health of a company; this can be done by calculating the company’s financial ratios. Financial ratios are best used as a diagnostic tool to find resources of a financial trouble company. Financial ratios provide a fast and somehow straightforward approach to investigate the financial viability of a company. A ratio easily concerns one number seeming in the economic declarations to some other number seeming in the economic declaration ratios can split up in distinct assembly and each assembly can, at identical time, be sub-divided. In this paper, I will concentrate on liquidity, solvency, Working capital management, profitability and asset efficient ratios, with this, people will be able to understand Tasso plc. Financial position and be able to appraise it. TASSO PLC. Financial STATEMENTS AS OF THE YEAR 2009 AND 2010 2010 2009 REVENUE Cost of Sales 56910 53898 GROSS PROFIT 4607 4185 Administration Expenses 420 216 Research and Development 0 0 Depreciation 1107 1036 Operating Profit 3080 2933 Financial Income -314 -362 Profit from Sale of Assets 377 236 Others 33 110 PROFIT BEFORE TAXATION 3176 2917 Taxation 840 779 PROFIT FOR THE YEAR 2336 2138 Earnings per Share 29.33 27.14 Dividends per Share 13.05 11.96 Dividend cover 2.36 2.27 Other income/ loss -87 -355 Comprehensive Income 2249 1783 In the table above is the income statement of Tasso plc ,it’s a summary of the accounts between the year 2009 and 2010. 2010 2009 NON CURRENT ASSETS (million) (million) Property plant and equipment 24203 23152 Goodwill and Intangibles 4177 4076 Long term investments 2746 1860 Others 3132 2997 Total Non Current Assets 34258 32085 CURRENT ASSETS Cash and Cash equivalent 2819 3509 Inventory 2729 2669 Receivables 1888 1820 Others 4329 5481 Total Current Assets 11765 13479 CURRENT LIABILITIES Accounts payable 9442 8665 Short term debt 1672 3996 Others 4898 4934 Total Current liabilities 16015 17595 NON CURRENT LIABILITIES Long term Debt 12520 12693 Deferred income tax 795 676 Minority interest 0 0 Others 2012 1694 Total non Current Liabilities 15327 15063 BOOK VALUE 14681 12906 SHAREHOLDERS FUND Common stock 399 395 Preferred stock 0 0 Other paid in Capital 4801 4638 Treasury Stock 0 0 Reseves 40 40 Retained income 9356 7776 Minority interest 85 57 Total shareholders Income 14681 12906 2010 2009 (millions) (millions) Net cash From Operating Activities 4745 3960 INVESTING ACTIVITIES Capital Expenditure 2855 4487 Acquisitions 65 1275 Other investing Activities 1043 -212 Total cash from investing activities -1877 -5975 FINANCING ACTIVITIES Cash dividend paid 968 883 Stock retired 24 265 Stock issued 167 130 Issue of new debt 862 7387 Repayment of debt 3601 2733 Others -43 -21 Total cash from financing activities -3607 3615 Net Change in Cash -739 1601 The tables above show the balance sheet and the cash flow account of Tasso plc, presenting a summary of accounts between the years 2009 and 2010. Liquidity Ratios Current ratio = Current Assets / Current liability Year 2010 11765/16015 = 0.73 *100 = 73% Year 2009 13479 / 17595 = 0. 766 * 100 = 77% Quick ratio (Acid Test ratio) = (Current Assets – Inventory) / Current Liabilities Year 2010 (11765-2729 - 4329) / 16015 = 0.29 *100 = 29 % Year 2009 (13479- 2669 - 5481) / 17595 = 0.30 *100 = 30% Solvency ratios Debt ratio = Total liabilities / Total assets Year 2010 31342 / 38562 = 0. 81 * 100 = 81% Year 2009 32658 / 37086 = 0.88 * 100 = 88% Long term debt to assets ratio = Long term Debt / total assets Year 2010 12520 / 46023 = 0.27 *100 = 27% Profitability ratios Return on Capital employed = Profit before concern and taxation / capital committed + long run loans Year 2010 1823 / 12358 = 0.1475 * 100 = 14.75 Year 2009 1541 / 10608 = 0.1452 * 100 = 14.52 Gross profit Margin = Gross profits / sales *100 Year 2010 2409 / 30814 = 0.0781 * 100 = 7.81% Year 2009 1997 / 26004 = 0.0768 * 100 = 7.68% Working Capital Management Ratios Inventory turnover ratio = cost of Goods Sold / Inventory Year 2010 56910 / 2729 =20.9 Year 2009 53898 / 2669 = 20.2 Working Capital turn over = sales / Working capital Working capital = current assets – current liabilities Year 2010 30814 /-4250 = 70.8 Year 2009 26004 / -4121 = 6.31 Asset Efficiency ratios Fixed assets Turnover ratio = Sales /Fixed Assets Year 2010 30814 /34258 = 0.9 * 100 = 90% Year 2009 26004 / 32075 = 0.81 * 100 = 81% Total Assets turnover = sales / total assets Year 2010 30814 / 46023 = 0.67 *100 = 67% Year 2009 26004 / 45564 = 0.57 * 100 = 57% Liquidity ratios help management to know if the company can be able to undertake the day-to-day operations; this is determined by assessing the cash availability of the company. There are different methods to determine the liquidity of the company one of them is by using the current ratio. Current ratio gives as a quicker way to look at the current assets and current liabilities. They should be almost equal to each other and by looking at Tasso plc financial account we can see that in the year 2009 that the current ratio is 0.77 while that of the year 2010 is 0.73. the ideal position is that the current ratio should be 1 this means that Tasso plc’s current liabilities exceeds the current assets and that they are having trouble financing their shout term financial obligations. The company should reduce the current liabilities or increase its Current assets (Gorr, 1992). Financing a company needs to find funds finance its operations and by this it the company may might not have the sufficient finances to do this and by so it acquires debt as another form of financing. Solvency ratios help management in determining the extent of risks that it may involve. In Tasso plc .we can see that that the debt ratio dropped from o.88 to 0.81 this shows that the company is doing well in its balancing between equity financing and debt financing. Profitability ratios are another important tool that helps the management in assessing its costs and comparing it with the sales that it makes. Gross margin helps the management know how much of every dollar of sales is left after cost s of goods sold. According to Tasso plc accounts it can be noted that the gross margin increase from 2009, which was 7.68% to 7.81% in 2010, this indicates that the company is doing well to increase their revenues and minimize their costs. So that a company can be able to undertake its day-to-day operations smoothly and be able to take advantages of opportunities that presents themselves, it has to determine its working capital. Working capital is simply the difference between the current assets and the current liabilities. According to Tasso plc.’s working capital turnover ratio it has improved from the year 2009 to 2010 but the company should apply mechanisms to improve on their working capital this is because the current liabilities is more than the current assets and this is not the way the company should run its operations. But so far the company is doing well because of the long term finance that they have and the sales of the company are doing well. It is very important that the assets of a company are used in the most efficient manner to realize its benefits in the long run. Assets efficiency ratios help management to realize these benefits. It will help them know the kind of assets that they will have to purchase to increase the revenue that they will generate. According to Tasso plc’s financial accounts fixed asset turnover ratio is doing very well, we can see an increase from the year 2009 to 2010, this can be attributed with the increase in sales, which has resulted in an increase in profit. The key performance indicators of Tasso plc can be seen with the increase of profit that they realized between the 2009 and 2010. This shows that the company is improving in their sales and this is positive for business. Another indicator that shows the performance of Tasso plc operations is the return on capital-employed ratio. According to the company’s financial accounts, it can be seen that the ROCE has decreased during the years and for that, it has been reflected in the trading profit performance (Basu, 2007). Using financial ratio analysis has its advantages and its disadvantages. Some of its advantages is that it simplifies financial statements, it help compare current years’ performance with previous ones and between itself and its competitors, it also helps in identifying the company’s problems and for that solutions can be sort. It also has its disadvantages in that the information used is historic and not current, ratio analysis does not take considerations on external factors such as recession and it does not take into account the human element in a firm (Basu, 2007). Reference Basu, R. & Wright, N. 2007. Total Supply Chain Management. Elsevier Publishers. Oxford: UK. Arneson, R. 2005. Equality and equality of opportunity for welfare. Philosophical Studies 56, 77–93. Benatar, D. 2006. Better Never to Have Been. Clarendon Press, Oxford. Brams, Steven J. 2005. Paradoxes in Politics. The Free Press, New York. Clark, M. 1994. There is no paradox of blackmail. Analysis 54, 54–61. Paradoxes from A to Z. Routledge, London. Cohen, G. A. 2009. On the currency of egalitarian justice. Ethics 99, 906–44. Cohen, L. Jonathan . Feinberg, J. 2008. The paradox of blackmail. Princeton University Press, Princeton. Fletcher, George P. 1993. Blackmail: the paradigmatic crime. University of Pennsylvania Law Review 141, 1617–38. 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