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May 09, 2023
  1. Ratio Analysis

    The detailed analysis of financial ratios is conducted to analyze the different aspects of the financial performance of the company. The detailed analysis is provided below. 

    Gross Margin: It indicates the gross profit earned by a company before the deduction of taxes and other expenses. The gross margin for the year 2003, 2004 and 2005 stood out to be 0.42, 0.42 and 0.40. It can be noticed that the profit margin of the firm has decreased for 2005 when compared to previous year. It can be due to reduction in sales (Carreras-Simó and Coenders, 2019).

    Operating Profit: It indicates the income that is generated through the operation of the business. The operating profit for three years were 11.44%, 8.67% and 10.1%. It suggests that the profit from operation have declined due to slow down in the activities along with reduction in sales.

    Current Ratio: The current ratio for the three years were 2.01, 2.27 and 1.77 suggesting that through the current assets are more than the current liabilities, the has comparatively declined for 2005.

    Inventory Days: Low amount of inventory is prepared as it suggests that the company selling the products within small period of time. The inventory days for the three years stood out at 78, 88 and 81. It suggests that the company’s inventory is tied up for an average of 81 days before it is sold in the market.

    Inventory turns: It indicates the number of times an inventory is sold in the market. For the three years inventory turnover were 4.62, 4.11 and 4.47. It suggests that the number of times an inventory is sold have decreased for 2005 when compared to previous year. It van be due to poor productivity or increase in competition.

    Day Sales and Payable outstanding: It indicates the amount of money which is due to the company from debtors and the amount that the company owes to its creditors (Haskins, 2017). Sales outstanding for 2005 was 0.2 which suggests that out of the total revenue generated, the company cannot receive 2% of the revenue from its debtors. Further, payable outstanding for 2005 stood out at 3.2 which indicates that out of the total cost of good sold, 32% needs to be paid to creditors.

    PPE turnover: It indicates the contribution of plants and equipment in the revenue generation of the company. The PPE for the three years were 9.6, 8.11 and 3.2. It indicates that the generation of revenue from plant and equipment have reduced due to reduction in their efficiency and decrease in overall sales.

    Debt to equity: It compares the debts to the equity of the firm. For 2005 the ratio was 0.44 indicating that the debts are lower than the equity and hence the operations of the firm can are financed majorly tjrough equity share capital (Myšková and Hájek, 2017).

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