Under the Task I, the financial statements of Astra Zeneca have been analyzed in order to assess the performance of the company under the categories of profitability, liquidity, gearing and investments. For this purpose the…
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Profitability of Astra Zeneca has been analyzed by using four profitability ratios, namely gross profit ratio, operating profit ratio, return on total assets, and net profit ratio. Gross profit measures the percentage of each sales dollar remaining after the company has paid for the goods sold. In fact this is the margin of profit created by sales to meet overheads and other expenses. Astra has shown an improvement in this area of profitability as its gross profit has increased from 78.28% in 2007 to 79.12% in 2008. This also reflects the improvement in its efficiency in managing its cost of sales.
Operating profits are also called EBIT (earnings before interest and taxes).These are pure profits because they measure only the profits earned on operations ignoring interest, taxes, and preference dividends. Astra has shown improvement in operating earnings in 2008 when compared with 2007. In 2008 operating profit ratio was 28.94% which is an efficient improvement when compared to 27.38% in 2007.
Ratio of net profit remaining after taxes reflect the overall performance of the firm after meeting all expenses, overheads, finances expenses, and taxes. In 2007 this ratio was 19.04% which improved slightly to 19.4% in 2008.
Profitability assessment can also be made on basis of return on total assets (ROA). It is also called return on investments. This ratio measures the overall efficiency of management in generating profits. Astra’s return on assets was 13.04% in 2008, which is a definite improvement over ROI of 11.67% in 2007.
Liquidity of a firm represents the firm’s ability to meet its short term liabilities as those become due. In fact liquidity refers to the solvency of overall financial position of the firm. Liquidity of a firm is generally measured by its current ratio and quick ratio. However, average collection period and average payment period are related liquidity checks
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The most important element for any business is the availability of the funds and finance. Almost all organisations make sure that they have the required funds in order to run the operations of the business in effective and efficient manner. Main issue in the starting of any business or organisation is to search for appropriate source of finance in order to make sure that the start-up funds are available (Johnson, & Scholes 2001).
2. Analysis 2.1 Task 1 - The business . 1 Describe the type of business and its ownership. This should include: The business's name, the form of business organization (Sole trader, partnership or limited company) The business will be named as ABC Company and the same would be limited company as the same would be better than sole trader and partnership because of the limited liability of the owners as an overwhelming advantages as against the first two Limited liability, as name of suggests, would involve less risks for owners compared to sole trader and partnership.
Other aspects include auditing by external firms, which ensures that accounting fraud is prevented by examining the ledgers of a company with other records to ensure that the ledgers provide a true and fair view of the company's financial dealings.
Accounting is used for drawing up the financial records of a company in order to make important decisions, such as whether or not to make a major investment.
Types or techniques of costing means the manner of ascertaining costs. Opportunity cost refers to the value of an advantage relinquished in accordance with another option. It is the cost of the best alternative foregone. It is the value of benefits foregone when one decision alternative is selected over another.
The Food and Agriculture Organization of the United Nations (FAO, 1997) explains in some detail the following sources for financing a business:
"Ordinary shares are issued to the owners of a company. They have a nominal or 'face' value, typically of $1 or 50 cents.
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