Example of a Financial Ratio Analysis for a Trading Company
Page 1
Trading Company AFS
FINANCIAL ANALYSIS OF THE TRADING COMPANY (PTY) LTD
Holistic over view of operating performance
(Using a traffic light system to quickly highlight performance) 1. RONA - Return on Net Operating Assets 2010 18.4% 2009 21.2%
Net Operating profit (Income Statement) Net Operating Assets (Balance Sheet)
135 735
84 396
Note: Net Operating Assets - take total net Assets, and add back cash, overdraft balances, tax and dividends. These are financing factors, and are not part of operations ' responsibility 1 a. Profitability Net Operating profit (Income Statement) Sales 9.0% 135 1500 7.0% 84 1200
1 b. Asset efficiency (sweat) Sales Net operating Assets
2.04 1500 735
3.03 1200 396
Conclusion: Management has delivered a weaker RONA over the past year, despite improved profitability from operations. the marginal drop in RONA is a result of the following factors: While profitability has improved, Asset sweat has declined significantly ( by 32%), and has more than off-set the good work in managing top - line improvement. Further analysis now needs to be done, with an eye on those indicators which are driven by the use of assets
Now dive deeper into the company 's performance, keeping the big picture in mind. This allows you to focus on items that drive the above three ratios 2010 2. Profitability Trading Margin (Gross Profit) 2 a. Gross Margin Net Operating profit (Income Statement) Sales 28.5% 427 1500 25.0% 300 1200 2009
2.b Net income after tax (NIAT) NIAT Sales
2.5% 38 1500
3.0% 36 1200
2 c. Return on Owners Equity NIAT Owners Equity
11.2% 38 340
11.3% 36 320
Conclusion: Management has improved the trading margin of the company, either by improving price, and or improving the direct input costs, such as transport costs of the delivery fleet - this could be via improved usage of the assets, better configuration of the vehicle fleet and better routing of deliveries However, the NIAT figure has
Trading Company AFS
FINANCIAL ANALYSIS OF THE TRADING COMPANY (PTY) LTD
Holistic over view of operating performance
(Using a traffic light system to quickly highlight performance) 1. RONA - Return on Net Operating Assets 2010 18.4% 2009 21.2%
Net Operating profit (Income Statement) Net Operating Assets (Balance Sheet)
135 735
84 396
Note: Net Operating Assets - take total net Assets, and add back cash, overdraft balances, tax and dividends. These are financing factors, and are not part of operations ' responsibility 1 a. Profitability Net Operating profit (Income Statement) Sales 9.0% 135 1500 7.0% 84 1200
1 b. Asset efficiency (sweat) Sales Net operating Assets
2.04 1500 735
3.03 1200 396
Conclusion: Management has delivered a weaker RONA over the past year, despite improved profitability from operations. the marginal drop in RONA is a result of the following factors: While profitability has improved, Asset sweat has declined significantly ( by 32%), and has more than off-set the good work in managing top - line improvement. Further analysis now needs to be done, with an eye on those indicators which are driven by the use of assets
Now dive deeper into the company 's performance, keeping the big picture in mind. This allows you to focus on items that drive the above three ratios 2010 2. Profitability Trading Margin (Gross Profit) 2 a. Gross Margin Net Operating profit (Income Statement) Sales 28.5% 427 1500 25.0% 300 1200 2009
2.b Net income after tax (NIAT) NIAT Sales
2.5% 38 1500
3.0% 36 1200
2 c. Return on Owners Equity NIAT Owners Equity
11.2% 38 340
11.3% 36 320
Conclusion: Management has improved the trading margin of the company, either by improving price, and or improving the direct input costs, such as transport costs of the delivery fleet - this could be via improved usage of the assets, better configuration of the vehicle fleet and better routing of deliveries However, the NIAT figure has