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The Return On Capital Employed Finance Essay

The funding is to return on capital employed (ROCE) is used as a measure of profitability that every company clear its invested capital. It is generally used as a means to compare performance between companies and evaluate whether a company produces enough money to pay its cost of capital.

Return on total assets (ROTA)

An earnings ratio that measures a company before interest and taxes (EBIT) compared with its total net assets. The ratio is considered an indicator of how efficiently a company uses its assets to generate earnings before contractual obligations to pay.

Net profit margin

Net income / net profit is often expressed as a percentage. These figures underline the effectiveness of the company is in control. When the net profit margin is big business is better to convert back to real benefits. An important way to compare companies within the same industry is the net profit margin; these companies are generally subject to similar conditions. But to compare companies in different sectors, the net is also a good way to gauge which industries are relatively more profitable.

Profit margin, net margin, or profit net profit margin all refer to a certain level of profitability. It is calculated by finding the net percentage of revenue.

Turnover:

Also known as CA Asset Ratio.

  Asset turnover measures the efficiency of the company using its assets to generate sales or revenue. It displaying pricing strategy for firms with low profit margins tend to have a high turnover of assets, while those with high profit margins have asset turnover low.

Asset turnover is a financial report which measures the performance of using a company of its assets in generating revenue from sales or income from the sale of the company.

SALE OF FIXED Equity:

Sales to assets ratio is often called the turnover ratio of assets.

Sales to assets ratio is included in the declaration of spreadsheets analyzing financial ratios highlighted in the left column, which contains formulas, definitions, calculations, charts and explanations of each report.

REPORT OF ACTIVITY:

One indicator of how quickly a company converts various accounts, in cash or sales. Generally, the sooner managers can turn assets into cash or sold, the more effective is the company works.

Flip STOCK RATIO:

Turnover ratio and inventory turnover rate of stocks is the same. This relationship is a relationship between the cost of goods sold in a period of time and cost of average inventory during a given period. It is expressed in number of times. Stock turnover ratio / turnover ratio of stocks is the number of times the stock has been reversed during the period and assess how effectively a company is able to manage its inventory. This ratio indicates whether the investment in equipment is in proper limit or not.

DEBTOR days:

Most companies with a majority (or all) of their sales on credit. Day debtor is a measure of the average time of payment. An increase in debtor days can be a sign that the quality of accounts receivable of the Company are in decline. This could mean a higher risk of default (it is not paid at all). It could also be an indicator of liquidity could weaken or more working capital will be needed.

This ratio is often expressed in one of two forms. One is the collection of debtor days.

The second is the percentage of sales outstanding

generally lower debtor days figure is better. The comparisons of the same company at different periods are the most frequently used. Comparisons of firms in different sectors are rarely significant as the differences are generally very well because of the nature of different businesses.

Day CREDITOR: average time it takes for a company to pay its creditors.

The problem is that the level of annual purchases are rarely detected and not included in any financial statements required (a value statement will reveal this, but they are rare). This means it is usually necessary to use a proxy for the annual purchase. Cost of goods sold is often used. This is certainly true when the company is solely a transaction price of goods sold is only the cost of purchase. For companies such as producers, it would probably be inaccurate (too pessimistic).

When companies do not disclose the price of goods sold, provided it has a lower gross margin and selling can be used as a proxy. This still requires all the conditions of use of consumer products as a proxy to be true, and that could be used as a proxy for the purchase, and it will always be less accurate of the two

Day creditor, a measure similar to the time the debtor.

.

Day INVENTORY:

    Average numbers of days goods remain in inventory before being sold. As a measure of short-term sales potential, a number of industry standards indicate problems with the sales forecast. And a number of sub-standards show lower sales owing to its inability to meet demand. Also known as day’s inventory covers days, or days sales inventory.

Gearing ratio:

A general term describing a financial ratio that compares one or another form of equity (or capital) to borrowed funds. The transmission is a measure of financial leverage, demonstrating the extent to which a company's activities are funded by the owner of creditor funds.

QUICK ASSETS RATIO:

Also called acid test ratio "or quick assets ratio, it is an indicator of a company short-term liquidity. The liquidity ratio measures the ability of a firm to meet its current obligations to its most liquid assets. The quick ratio higher, the better position in the company.

The liquidity ratio is more conservative than the current ratio, better known liquidity because it excludes inventory from current assets. Inventory is excluded because some companies find it difficult to convert their assets into cash. If the short-term bonds to be paid immediately, there are circumstances in which the current report in May overstate its financial strength in the short term.

Current ratio:

   

An indication of the ability of a firm to meet its obligations in the short-term debt, the higher the percentage, the more cash from the company. The liquidity ratio is equal to the current assets divided by current liabilities. If the assets of a company is more than double the short-term debt because the company is generally regarded as having good resistance to short term finance. If current liabilities exceed current assets, then the company may have difficulty fulfilling its current obligations.

......................................................................................................................................................

2008

2009

2010

ROCE

55.63

59.36

46.49

ROTA

41.33

39.68

32.10

NET PROFIT MARGIN

10

8.73

7.67

GROSS PROFIT RATIO

20

16.60

14.94

TOTAT ASSETS TURNOVER

4.13

5.54

4.18

SALE TO FIXED ASSETS

14.08

21.23

27

ACTIVITY RATIO

18.19

23.28

37.76

STOCK TURN OVER RATIO

9

11

15.7

DEBTOR DAYS

14.55

19.4

32.1

CREDITOR DAYS

16.3

20.69

22.21

STOCK DAYS

7.27

9.24

13.38

GEARING RATIO

0

0

28.53

NETWORKING TO SALE RATIO

0.10

0.09

0.12

ACID TEST OR QUICK RATIO

2.42

2.02

2.23

CURRENT RATIO

2.74

2.37

2.72

ROCE: The performance of ROCE in 2010 is less as compare to 2008 and 2009 but 2008 and 2009 shows increased level in ROCE so these two years were considered good for shareholders. in ROTA 2008 is on increased level to give profit to the company as compare to 2009 and 2010.A slight less performance can be seen in 2009 and 2010 in net profit margin so a company needs to concentrate towards sale standard. Gross profit ratio shows high performance in 2010 in front of 2008 and 2009 so this year is the successful year for the company in achieving high price from the customer this indicates the extra inflow from extra unit sold .Total assets turnover shows slight increased performance in 2009 as compare to 2008 and 2010 so it showed investment remained effective in 2009.The performance of sale to fixed assets has increased in 2009 and in 2010.

Activity ratio increased in 2010 and remained successful in using assets as compare to other two years, stock turn over level is increased in 2010 so this year company has crossed the average number of days in selling its stock, debtor days, creditor days and stock days has increased in 2010 as compare to 2008 and 2009.The gearing ratio in 2010 is very high which shows success to meet the long term commitment of a company. Acid test ratio in 2008, 2009, 2010 is almost same in meeting short term commitment whereas in current ratio 2008 and 2010 shows bit high performance in meeting short term commitment.

CONCLUSION:

The performance of a company MG Fabrication in 2008 to 2010 remained quite successful in different aspects profit level increased successful to achieve short and long term commitment and also successful in selling its stock within average number of days so invest with this company will be effective.

A company’s condition and performance can be measure by using different ratios that how well the company is performing where its lacking and why etc. Different groups of ratio indicates different function of a company regarding profit and loss this helps to observe weak and strong performance of a company e.g the ability of a company to meet particular obligation, to meet short term and long term commitment, amount of income, managing resource efficiency etc .Consequently financial ratios plays sufficient role to make the business successful.

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