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|
Details |
Interim Sector
Averages |
Fusion Ratios |
|
Return
on capital employed |
22.10% |
53.54% |
|
Gross
profit margin |
30% |
22.89% |
|
Net
profit (before tax) margin |
12.50% |
7.67% |
|
Current
ratio |
1.6:1 |
1.19 |
|
Acid
test (Quick) ratio |
0.9:1 |
0.64 |
|
Inventory
days |
46 days |
40.82 |
|
Receivables
days |
45
days |
47.51 |
|
Payables
days |
55 days |
51.96 |
|
Debt
to equity |
40% |
238.81% |
Analyzing the financial performance
of Fusion:
This ratio indicates that how well the management has
efficiently used the equity of the shareholders.
High ratio means higher profitability and efficient
funds management.
Low ratio means lower profitability and inefficient
funds management.
As
the ratio of the Fusion Company which is 34.64% which is higher than the market
return on capital employed ratio 22.1%, so it means they have efficiently
managed the funds and efficiently used the equity of shareholders
Profitability ratio of Analyzing the financial performance of
Fusion
Profitability ratio indicates the profitability of company. The skill of a business in generating incomes is assessed through profitability ration relative to the expenses of the business.
It
one of the types of profitability ratios which is used in showing the bond
between complete revenue of net sales and gross profit. In the evaluation of a
business’s operational performance, it is recognized as a technique.
As
the Fusion company’s ratio of gross profit is in fact 22.88% which is less than
market ratio of 30% which means that operational performance of the company is
not that good. Their performance is not according to the other businesses which
are operating in the same market. They have to improve these figures and should
improve its performance against its competitors
Net Profit Ratio
of
Analyzing the financial performance of Fusion
It
shows the overall profitability of business. It shows how efficiently the
business is conducting its operations to ensure higher profits.
High
ratio means efficient operating expenses and low finance cost
Low
ratio means uncontrolled expenses and high finance cost
Also the net profit ratio of Fusion Company (7.67%) is less than the market net profit ratio of 12.5%. As this shows the efficiency of the business so it means Fusion Company is not operating its operations efficiently to ensure higher profits. They should improve their efficiency by lowering their expenses and increase their revenues.
The
liquidity ratio shows that whether the current assets of a company would be
sufficient in meeting the obligations of company when the deadline is close. It
includes current ratio and acid test ratio
For the measurement of resources in terms of obligations which are short-term, current ratio is used. We can assess this ability of the firm by comparing the company’s present or current resources with company’s present liabilities.
Higher present ratio than industry average means there is a risk of default.
By calculating the current ratio of Fusion Company now we can say that £1is owned by the company of present resources for each and every £0.19 of liabilities which are present which shows good performance of the company. (tutor2u.net, 2018)
Acid Test Ratio of Analyzing the financial performance of Fusion
It indicates the business capacity to pay off current obligation immediately and is more accurate liquidation’s test than the ratio which is present. It is also quick ratio.
High ratio means better liquidity position and longer debtor’s credit period.
Low ratio means financial difficulty, lower inventories and shorter debtors’ credit period.
Firms having a test ratio of acid lower than 1mean that they don’t own sufficient assets of the liquid for paying off their liabilities and caution should be related with them.
Additionally,
the Fusion Company’s test ratio of the acid is lower than 1which mean that they
are facing financial difficulties and do not have enough inventories. This
figure is also less than the market figure of 0.9
Actually, Inventory days specify the days’ average number of goods or elements which the inventory is holding before being sold. When the average number of days for which the inventory is being held exceeds the industry norms then it indicate problems with sale forecasts of the company.
The
inventory days of Fusion Company are greater than the market inventory days
which are not considered good for the firm. In fact, it means that more time
period is taken than the market time period to sell their inventory in the
market
Receivable Days of Analyzing the financial performance of Fusion
Receivable
days mean that how much days it takes for the company to collects its
receivables from their debtors. A low receivable day’s value means that it
takes fewer days for the company to collect its account receivables
The receivable day’s ratio of the Fusion Company is 48 days and the market receivable days ratio is 45 days which does not show major difference. It means it takes 48 days for Fusion to collect its debts from its debtors. It shows that the company has efficiently managed its account receivables from their debtors.
Payable Days of Analyzing the financial performance of Fusion
The formula of payable days concerned with accounts is used to illustrate the days’ number taken by a company to pay when it comes to its suppliers. If the number of payable days are increasing from one period to another period, then it means that the company is paying to its suppliers more slowly which shows the worst financial position of the company?
The payable days ratio of the Fusion is 68 days which is more than the market ratio of 55 days. It means it takes 68 days for Fusion to pay its debts to their debtors. As the ratio is higher than the market shows then it shows two signs for the company i.e. one is that the company gets more time from their suppliers to pay its debts which are a good sign but on the other hand it also shows the bad performance of the company. For example it means that the company has not enough funds to pay to its suppliers on time which shows the worst financial position of the company.
Debt to equity ratio of Analyzing the financial performance of Fusion
This is the second type of leverage ratio which is use to evaluate company’s financial leverage. It is also gearing ratio.
A high debt equity ratio is usually associated with high risk which means that the company has been aggressive in financing its growth with debt.
The debt to equity ratio of the company which is
238.80% shows that the company is highly geared as compared to the market ratio
of 40%. It means the company has more debts than its equity which means it is
highly geared. It means at the time of lower profits and higher interest rates,
the company would be more susceptible to loan default and bankruptcy
|
Details |
Interim Sector
Averages |
Fusion Ratios |
|
Return
on capital employed |
22.10% |
53.54% |
|
Gross
profit margin |
30% |
22.89% |
|
Net
profit (before tax) margin |
12.50% |
7.67% |
|
Current
ratio |
1.6:1 |
1.19 |
|
Acid
test (Quick) ratio |
0.9:1 |
0.64 |
|
Inventory
days |
46 days |
40.82 |
|
Receivables
days |
45
days |
47.51 |
|
Payables
days |
55 days |
51.96 |
|
[1] |
M. S. Fridson and F.
Alvarez, Financial Statement Analysis: A Practitioner's Guide, John Wiley
& Sons, 2011. |
|
[2] |
I. Pandey, Financial
Management, Vikas Publishing House, 2015. |
|
[3] |
G. SINHA, FINANCIAL
STATEMENT ANALYSIS, PHI Learning Pvt. Ltd, 2012. |
|
[4] |
Higgins, Analysis for
Financial Management, Tata McGraw-Hill Education, 2007. |
|
[5] |
P. Atrill, Financial
Management for Decision Makers, 7 ed., Pearson Higher Ed, 2014. |
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