Analysing the Financial Performance of Domestic Dog Homes
In this part of my report, I will explain in depth how these ratios are used to monitor the financial state of Domestic Dogs Homes. I will also assess the company’s performance generally.
Part 3: Analysing the financial performance of Domestic Dog Homes
Profitability ratios
Gross Profit Margin:
This ratio is used to assess a company’s financial performance by revealing the money left over from the revenues. Gross Profit Margin also serves as the source for paying additional expenses and future savings.
According to Domestic Dog Homes’ profit and loss account, it has obtained a reasonably high percentage of gross profit which means that the company is doing well and will be able to control the costs of its expenses.
Net Profit Margin:
The Net Profit Margin indicates how much profit a company makes from every £1 it makes in sales. It is very advantageous to companies as the higher the net profit margin, the more control they have over their expenses and this also indicates that they are doing better than their competitors.
Domestic Dog Homes’ accounts show that the percentage obtained for the net profit is too high (18.13%) which means that it is taking out too much profit from the company.
Return on capital employed (ROCE):
This ratio indicates the efficiency and profitability of a company’s capital investments; this means that the ROCE should always be higher than the amount of money the company borrowed. ROCE also signifies whether the company is earning sufficient revenues and profits to help it use its capital assets effectively. The accounts of Domestic Dog Homes illustrate that the company is performing fairly well as it has received a reasonable return.
Liquidity Ratios:
Current ratio:
This ratio measures a company’s ability to pay off its debts. In addition, it also shows how many assets a business has comparing to its liabilities. The
Part 3: Analysing the financial performance of Domestic Dog Homes
Profitability ratios
Gross Profit Margin:
This ratio is used to assess a company’s financial performance by revealing the money left over from the revenues. Gross Profit Margin also serves as the source for paying additional expenses and future savings.
According to Domestic Dog Homes’ profit and loss account, it has obtained a reasonably high percentage of gross profit which means that the company is doing well and will be able to control the costs of its expenses.
Net Profit Margin:
The Net Profit Margin indicates how much profit a company makes from every £1 it makes in sales. It is very advantageous to companies as the higher the net profit margin, the more control they have over their expenses and this also indicates that they are doing better than their competitors.
Domestic Dog Homes’ accounts show that the percentage obtained for the net profit is too high (18.13%) which means that it is taking out too much profit from the company.
Return on capital employed (ROCE):
This ratio indicates the efficiency and profitability of a company’s capital investments; this means that the ROCE should always be higher than the amount of money the company borrowed. ROCE also signifies whether the company is earning sufficient revenues and profits to help it use its capital assets effectively. The accounts of Domestic Dog Homes illustrate that the company is performing fairly well as it has received a reasonable return.
Liquidity Ratios:
Current ratio:
This ratio measures a company’s ability to pay off its debts. In addition, it also shows how many assets a business has comparing to its liabilities. The