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Accounting and Finance in CSR Plc - Case Study Example

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The author of this case study "Accounting and Finance in CSR Plc" describes features of CSR company and its comparison to Bond International Software Plc. This paper outlines profitability, efficiency, liquidity, gearing, and investor's rations. …
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Accounting and Finance in CSR Plc
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Download file to see previous pages The company has not declared or paid out dividends but its earnings per share are attractive. The company will be oversubscribed whenever it will go public.
The ratios used in analyzing the profitability are Net Margins, Return on Assets (ROA), and Return on Equity (ROE). Net Margins have shown a decline from 16.59 in 2005 to 15.01 in 2006. The main reason for such a decline is a tremendous increase in revenue turnover that has gone up from $486.531m to a huge 704.695m. Turnover wise this is a great achievement and that is almost 144.84 % of turnover in 2005. With such a big jump in turnover Net Margin ratio was bound to dwindle a little. The overall profitability has shown a tremendous increase from $83.156m in 2005 to $111.197m in 2006.
Though CSR Plc.’s net margin at 15.01 seems lower than 17.08 of Bond International Software Plc. (BIS), but its rise in revenue in 2006, which is 144.84% of its revenue in 2005, nullifies this effect when we observe that the rise in revenue for BIS was 126.23% of the previous year figure.
It may be noted that CSR’s Return on Assets (ROA) has increased from 20.79 in 2005 to 21.13 in 2006. This proves that the dwindling is net profit margins are only due to an effort made by the company to push its turnover. Assets have been utilized effectively by CSR when we see that BIS’s ROA in fact is gone down from 27.07 in 2005 to 22.5 in 2006.
Apparently the company has not been able to keep the upward swing when one looks at the bare figures of Return on Equity (ROE). The return on equity has gone down from 38.45% in 2005 to 32.55%. But that is not the fact. ROE is being calculated on the basis average of equity employed during the year; and because of hefty contribution to retained earnings in 2006 for the purpose of calculation of average capital employed, the ratio has dwindled down to 32.55%. These are sort of limitations of ratio analysis. In fact, total retained earnings have gone up from 132.138m in 2005 to 246.119m in 2006, almost 86.26% upswing over the retained earnings as on 31st December 2005.  ...Download file to see next pagesRead More
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