Digital Marketing

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Table of Contents

Morvern Enterprises LTD        

Profitability Ratios        

Liquidity Ratio        

Efficiency Ratios –        

Capital Structure        

Investors        

Advantages and limitations        

Bibliography        

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[pic 6]Morvern Enterprises LTD

In this assignment we will be looking at the final accounts for Morvern Enterprises ltd.  In this we will be looking at their statement of profit and loss and their statement of financial position. We will then be looking at 12 ratios to which we will calculate and analyse for the years ending 31/03/2012 and 31/03/2013.

These ratios to be calculated will include:

1.        Gross Profit Margin[pic 7]

2.        Expenses Turnover[pic 8]

3.        Net Profit Margin

4.        Return on capital employed

5.        Current Ratio[pic 9][pic 10]

6.        Acid Test Ratio

7.        Inventory Turnover[pic 11][pic 12]

8.        Receivables Turnover

9.        Payable Turnover[pic 13][pic 14]

10.         Gearing Ration

11.        Earnings per Share[pic 15][pic 16]

12.        Dividend Cover

Profitability Ratios

The Profitability ratios are a measure of Morvern Enterprises ability to generate earnings relative to sales, assets and equity. These ratios will be used to assess the ability of the company to generate earnings, profits and cash flows relative to some metric and often the amount of money invested. They highlight how effectively the profitability of the company is being managed.

Gross Profit Margin–

Gross Profit ÷ Sales x 100 = Answer %

The gross profit margin for Morvern Enterprises is a profitability ratio that measures how profitable the company can sell their inventory. Typically higher ratios are more favourable. Higher ratios mean the company is selling their inventory at a higher profit percentage. It will allow for those with an interest in the organisation to see how much profit they make after expenses have been counted for. High ratios can be achieved by two ways. One way is to buy inventory very cheap. If Morvern Enterprises can get a purchase discount when they buy their inventory from the manufacturer or wholesaler, their gross margin will be higher because their costs are down. The second way retailers can achieve a high percentage is by marking their goods up. This would have to be done competitively otherwise their goods will be too expensive and customers will shop elsewhere.

  The gross profit margin for Morvern Enterprises shows what they have earned for every £1 of sales they have made. This figure shows us how effectively they trade within the market. Upon calculating the Gross profit margin for Morvern Enterprises for the year ending the 31/03/2012 and 31/03/2013 it can be seen that the figure has decreased in the year period. In 2012 the organisations gross profit was 51.3% and then decreased to 47.2% within the next year. In the year 31/03/12 each sale being made generated the company 51.3p of profit to themselves. Whereas in the year ending 31/03/13 they experienced a drop of 4.1% in their Gross Profit Margin to 47.2p. This shows that they are generating less of a profit for the goods they are selling to consumers. [pic 19]In calculating these figures the assumption can be made that the company are not selling the same amount of goods in 2013 as in 2012. This also leads to the company having less money to pay operating expenses like salaries, utilities, and rent.

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Expenses Turnover –

Expenses ÷ Sales x 100 = Answer %

The expense turnover ratio measures the operating expenses of a business shown on the profit and loss statement. This ratio is a quick indicator of rising or decreasing costs or rising or declining sales. The expense turnover ratio is also a measure of how efficient a company is. It indicates how much expenses are incurred for every £1 sale.  Looking at Morvern Enterprise their expense ratio in 2012 was 18%. This means that for every £1 of sales, the company spent 63 pence to create the sale. Whereas in 2013 the expense turnover dropped to 15.1%. This show that for every £1 sale 15.1 pence was spent to create that sale. One of the most important considerations with this ratio is the direction is takes over time. According to ANZ 2009 “An expense ratio that is increasing over time means the company is operating less efficiently from period to period.” Therefore we can come to the conclusion that because the expense ratio of Morvern Enterprises has dropped that they are preforming more efficiently and the company is becoming more successful.

The ideal operating expense ratio will vary between industries, but generally a company can be compared to other companies in order to obtain a benchmark of their performance. Another consideration is whether Morvern Enterprises expense ratio increases as sales increase. For instance, if the operating expense ratio of Morvern Enterprise is 45% at the current level of sales, then if sales increase by 10 % in the next period but the ratio remains 45%, the Morvern Enterprise has been able to create 10 % more revenue without increasing cost.