Finance Report ASOS ESSAY
Ratio analysis
The ratios for years 2008-2012 are divided into the following groups: profitability, liquidity, gearing, employees and growth rates.
Profitability ratios
ROCE
ROCE started with a pleasing increase of 12.32% in 2009, however began to fall; decreasing by 32.14% from 2009 to 2011. Finally in 2012 the ratio increased again by 10.7%. The target ROCE is often 15-30%, so ASOS exceed the target return rate every year, with exception of 2011 (France, 2013). ASOS therefore shouldn’t have any long term risk. With a rate much higher than the risk free rate of return (4%) investors are likely to invest in the company (‘Risk Free Rate Of Return Definition | Investopedia’, 2003).
Return on sales
Return on sales (ROS) stands at 8.59% in 2008 and stays fairly consistent through to 2009. In 2010 it increases marginally by 0.68% to 9.11%, however falls to 6.30% by 2012. The target Return on sales is often around 10% dependant on the type of industry, so ASOS falls below the target. However ASOS have a high sales volume, which does not necessarily mean a low ROCE (France, 2013). The year preceding August 2013 they received 19,372 orders; a 43% increase on the previous year. (Asos plc. Results & reports, 2013)
Gross Margin %
The gross profit margin in 2008 showed a pleasing 46%; however between 2008-2011 there is a continuous downfall, with a decrease of 7.23% over the 3 years. Although this increased by 12.4% in 2012, the 7.23% fall in gross profit could potentially be catastrophic for a company with low ROS. However this could be due to a change in the price of raw materials or selling prices. (France, 2013)
Liquidity and gearing
Asos’ current ratio is always between 1.25-1.56:1. However they have not borrowed any money over the 5 year period, so carry a low risk to investors. Therefore even though they are not at the ideal ratio of 2:1, they have not borrowed any money; indicating they have good short-term financial strength (LetsLearnFinanceFinance in Simple
The ratios for years 2008-2012 are divided into the following groups: profitability, liquidity, gearing, employees and growth rates.
Profitability ratios
ROCE
ROCE started with a pleasing increase of 12.32% in 2009, however began to fall; decreasing by 32.14% from 2009 to 2011. Finally in 2012 the ratio increased again by 10.7%. The target ROCE is often 15-30%, so ASOS exceed the target return rate every year, with exception of 2011 (France, 2013). ASOS therefore shouldn’t have any long term risk. With a rate much higher than the risk free rate of return (4%) investors are likely to invest in the company (‘Risk Free Rate Of Return Definition | Investopedia’, 2003).
Return on sales
Return on sales (ROS) stands at 8.59% in 2008 and stays fairly consistent through to 2009. In 2010 it increases marginally by 0.68% to 9.11%, however falls to 6.30% by 2012. The target Return on sales is often around 10% dependant on the type of industry, so ASOS falls below the target. However ASOS have a high sales volume, which does not necessarily mean a low ROCE (France, 2013). The year preceding August 2013 they received 19,372 orders; a 43% increase on the previous year. (Asos plc. Results & reports, 2013)
Gross Margin %
The gross profit margin in 2008 showed a pleasing 46%; however between 2008-2011 there is a continuous downfall, with a decrease of 7.23% over the 3 years. Although this increased by 12.4% in 2012, the 7.23% fall in gross profit could potentially be catastrophic for a company with low ROS. However this could be due to a change in the price of raw materials or selling prices. (France, 2013)
Liquidity and gearing
Asos’ current ratio is always between 1.25-1.56:1. However they have not borrowed any money over the 5 year period, so carry a low risk to investors. Therefore even though they are not at the ideal ratio of 2:1, they have not borrowed any money; indicating they have good short-term financial strength (LetsLearnFinanceFinance in Simple