Financial Performance Analysis Of Abc Ltd Finance Essay

A ratio of profitableness calculated as netA incomeA divided by grosss, or net net incomes divided by gross revenues. It measures howA much outA of every dollarA of gross revenues a company really keeps inA net incomes.

Net income border is really utile when comparingA companies in similar industries. A higher net income border indicates a more profitable company thatA has better control overA its costs compared toA its rivals. Profit border isA displayed as a per centum

= Net income before involvement and revenue enhancement

Gross saless

Calculations For ABC LTD:

2002

= 9100/35000 = 0.26

2001

= 29635/7705 = 3.84

2.4 Liquidity Analysis

Current Ratio:

Current ratio is balance-sheet fiscal public presentation step of company liquidness. Current ratio is calculated by spliting current assets by current liabilities. Current ratio of more than 1.0 agencies that a company ‘s short term assets exceed its short term liabilities.

A high ratio than normal figure may be a mark of hapless working capital control.

A ratio under 1 suggests that the company would be unable to pay off its duties if they came due at that point. While this shows the company is non in good fiscal wellness, it does non needfully intend that it will travel belly-up – as there are many ways to entree financing – but it is decidedly non a good mark.

The current ratio can give a sense of the efficiency of a company ‘s operating rhythm or its ability to turn its merchandise into hard currency

Calculations For ABC Ltd:

ABC LTd

2002

= 22500/26000 =0.86

2001

= 15000/14000 = 1.07

Acid Test Ratio:

The current ratio can give a sense of the efficiency of a company ‘s operating rhythm or its ability to turn its merchandise into hard currency.

Companies with ratios of less than 1 can non pay their current liabilities and should be looked at with utmost cautiousness. Furthermore, if the acid-test ratio is much lower than the on the job capital ratio, it means current assets are extremely dependent on stock list

Calculations For ABC Ltd:

2002

7000+9500/2600 = 0.63

2001 3000+6000/14000 =0.64

Creditors Ratio:

It signifies the recognition period enjoyed by the house in paying creditors. Histories collectible include both assorted creditors and measures collectible. Same as debitors turnover ratio, creditors turnover ratio can be calculated in two signifiers, creditors turnover ratio and mean payment period.

The mean payment period ratio represents the figure of yearss by the house to pay its creditors. A high creditor ‘s turnover ratio or a lower recognition period ratio signifies that the creditors are being paid quickly. This state of affairs enhances the recognition worthiness of the company. However a really favourable ratio to this consequence besides shows that the concern is non taking the full advantage of recognition installations allowed by the creditors.

= Average Creditors x 365 ( yearss )

Recognition Purchases

Calculations For ABC Ltd. :

2002

= 26000/25900 * 365 = 366 yearss

2001

= 14000/22559 * 365 = 226 yearss

2.5 Management Efficiency Analysis

Stock Turnover Ratio

Stock bend over ratio/Inventory bend over ratio indicates the figure of clip the stock has been turned over during the period and evaluates the efficiency with which a house is able to pull off its stock list. This ratio indicates whether investing in stock is within proper bound or non.

Every house has to keep a certain degree of stock list of finished goods so as to be able to run into the demands of the concern. But the degree of stock list should neither be excessively high nor excessively low.

A excessively high stock list means higher transporting costs and higher hazard of stocks going disused whereas excessively low stock list may intend the loss of concern chances. It is really indispensable to maintain sufficient stock in concern.

This ratio should be compared against industry norms. A low turnover implies hapless gross revenues and, hence, extra stock list. A high ratio implies either strong gross revenues or uneffective purchasing.

= Cost Of Gross saless

Stockss

Calculations For ABC Ldt. :

2002

= 25900/6000 =4.31

2001

= 21930/6000 =3.65

2.6 Corporate Ratios

Net incomes per Share – EPS

The part of a company ‘s net income allocated to each outstanding portion of common stock. Net incomes per portion service as an index of a company ‘s profitableness.

Net incomes per portion are by and large considered to be the individual most of import variable in finding a portion ‘s monetary value. It is besides a major constituent used to cipher the price-to-earnings rating ratio.

An of import facet of EPS that ‘s frequently ignored is the capital that is required to bring forth the net incomes ( net income ) in the computation. Two companies could bring forth the same EPS figure, but one could make so with less equity ( investing ) – that company would be more efficient at utilizing its capital to bring forth income and, all other things being equal, would be a “ better ” company

Calculations For ABC Ltd. :

2002

= 5945/40000 = ?0.14

2001

= 4914/32500 =?0.15

Price/Earnings Ratio – P/E Ratio:

A rating ratio of a company ‘s current portion monetary value compared to its per-share net incomes.

Calculated as:

EPS is normally from the last four quarters ( draging P/E ) , but sometimes it can be taken from the estimations of net incomes expected in the following four quarters ( projected or frontward P/E ) . A 3rd fluctuation uses the amount of the last two existent quarters and the estimations of the following two quarters.

Besides sometimes known as “ monetary value multiple ” or “ net incomes multiple

In general, a high P/E suggests that investors are anticipating higher net incomes growing in the hereafter compared to companies with a lower P/E.

Dividend Output

A A financialA ratio thatA shows how much a company pays out in dividends each twelvemonth relation to its portion price.A In the absence of any capital additions, the dividend output is the return on investing for aA stock. Dividend output is calculated as follows:

Dividend Output

2.7 Fiscal Ratios

Tax return on Equity

The sum of net incomeA returnedA as a percentageA of shareholdersA equity.A Return on equityA measures a corporation ‘s profitabilityA by uncovering how muchA net income a company generatesA with the money stockholders have invested.A A

ROE is expressed as a per centum and calculated as:

= Net income attributed to ordinary stockholders

Entire assets

The ROE is usefulA for comparing the profitableness of a company to that of other houses in the same industry.

Gearing Ratio

A general termA describingA a financialA ratio that compares some signifier of owner’sA equityA ( or capital ) to borrowed financess. Gearing is a step of fiscal purchase, showing the grade to which a house ‘s activities are funded by proprietor ‘s financess versus creditor ‘s funds.A

A company with high geartrain ( high purchase ) is more vulnerable to downswings in the concern rhythm becauseA the companyA must go on to serviceA its debt regardless of how bad gross revenues are.A A greater proportion of equity provides a shock absorber and is seen as a step ofA financialA strength

= Debt A-100 %

Equity

2.8 Summary of findings

Chapter Three: Analysis of the Financial Performance of Jphones Ltd

3.1 Income Statement of J Phones Ltd for the period stoping December 31… :

3.2

3.3 Profitableness Analysis

Net Net income Margin:

Calculations For J phone Ltd. :

2002

= 144375/412500 =0.35

2001

= 125544/358695 =0.35

3.4 Liquidity Analysis

Current Ratio:

Calculations For J phone Ltd. :

2002

= 895000/350000 = 2.55

2001

=490000/200000 = 2.45

Acid Test Ratio:

Calculations For J phone Ltd. :

2002

15000+150000/350000 = 0.47

2001

= 16000+90000/200000 = 0.53

Creditors Ratio:

Calculations For J phones Ltd. :

2002

= 350000/268125*365 = 476 yearss

2001

= 200000/233151*365 =313 yearss

3.5 Management Efficiency Analysis

Stock Turn Over Ratios:

Calculations For J phone Ltd. :

2002

=268125/730000 = 0.37

2001

= 233151/384000 = 0.61

3.6 Corporate Ratio Analysis

EPS:

Calculations For J Telephones:

2002

= 53575/190000 =?0.28

2001

= 100544/180000 =?0.56

3.7 Capital Structure Analysis

3.8 Summary of findings

Chapter Four: Decision and Recommendations