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Interpretation of financial statement - Essay Example

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BLS Ltd.,manufacturer and supplier of customized furniture and fittings in the UK construction market has expanded its operations in newer markets in recent times.The company’s performance improved significantly up till 2010 as the new management which took over in 1996 made strong decisions…
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Interpretation of financial statement
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Download file to see previous pages 60% (2010) = (17,250,000) / 53,580,000 = 32.19% Debt to Equity Ratio Debt to Equity Ratio = Total Debt / Total Equity (2011) = (33,760,000) / 37,160,000 = 90.85% (2010) = (17,250,000) / 36,330,000 = 47.48% Interest Cover (TIE) Interest Cover = (Earnings before Interest and Taxes + Interest Expense) / Interest Expense (2011) = (12,920,000+ 2,000,000) / 2,000,000 = 7.46x (2010) = (16,905,000 + 1,700,000) / 1,700,000 = 10.94x Profitability Ratios Gross Profit Margin Gross Profit Margin = Gross Profit / Sales (2011) = 25,800,000 / 61,000,000 = 42.30% (2010) = 33,980,000 / 73,200,000 = 46.42% Operating Profit Margin Operating Profit Margin = Operating Profit / Sales (2011) = 14,920,000 / 61,000,000 = 24.46% (2010) = 18,605,000 / 73,200,000 = 25.42% Net Profit Margin Net Profit Margin = Net Profit / Sales (2011) = 7,320,000 / 61,000,000 = 12.00% (2010) = 9,578,000 / 73,200,000 = 13.08% Return on Assets Return on Assets = Net Profit / Total Assets (2011) = 7,320,000 / 70,920,000 = 10.32% (2010) = 9,578,000 / 53,580,000 = 17.88% Return on Equity Return on Equity = Net Profit / Total Equity (2011) = 7,320,000 / 37,160,000 = 19.70% (2010) = 9,578,000 / 36,330,000 = 26.36% Return on Capital Employed (ROCE) Return on Capital Employed = (Earnings before Interest and Taxes/Capital Employed)* (2011) = 14,920,000/55,160,000 = 27.05% (2010) = 18,605,000/47,330,000 = 39.31% * Capital Employed = Total Assets – Current Liabilities MARKET RATIOS Earnings per Share Earnings per Share = Net Profit / (Average no. of Outstanding shares) (2011) = 7,320,000 / (20,000,000) = ?0.37 (2010) = 9,578,000 / (18,000,000) =?0.53 Book Value per Share Book Value per Share = Common Equity / (Average no. of Outstanding shares) (2011) = 37,160,000 / (20,000,000) = ?1.86 (2010) = 36,330,000/ (18,000,000) =...
BLS Ltd., manufacturer and supplier of customized furniture and fittings in the UK construction market has expanded its operations in newer markets in recent times. The company’s performance improved significantly up till 2010 as the new management which took over in 1996 made strong decisions and adopted an approach based on quality and perseverance. However, analysis of the company’s financial ratios suggests that its financial performance has deteriorated considerably during the last year.Liquidity Ratios The current ratio of the company is just acceptable at 1.27. However this ratio has declined from 2.54 to 1.27. This is a worrying sign for the company as it implies that the company is just about covering its current assets with its current liabilities. In other words, the company is finding it much more difficult to meet its short term obligations now than a year ago (Besley et al. 2008). As a result, the working capital of the company has also decreased by a significant margin. Consequently, BLS Ltd.’s liquidity position has also worsened. The decrease in Quick/Acid Test Ratio from 1.36 to 0.68 is also quite alarming. This ratio is obtained by removing inventories from the equation which are considered to be the least liquid of all assets. This ratio implies that the company is covering just around 68% of its liabilities. The chief reason for these changes is the increase in current liabilities by more than 100% as the company has expanded its activities. ...Download file to see next pagesRead More
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