Mr. Ezekiel
PROGRAMME: MBA
MODULE : PGBM01
MODULE NAME: FINANCIAL MANAGEMENT & CONTROL
WORD COUNT: 3,392
PART A REPORT
TO: Board of Directors
FROM: AKINCOM CONSULTANT
DATE: 23rd January, 2014
SUBJECT: Evaluation of performance of Solvent PLC
PART (A)
INTRODUCTION
This report is submitted to Akincom Consultant for the evaluation of the performance of the Solvent PLC for the year 2010 and 2011. On the basis of the data given, the performance of the company will be assessed for the two periods in the areas of its profitability, liquidity, efficiency and solvency. Different analysis is conducted and appropriate recommendation is given along with some basic definitions and formulas adopted for the analysis of the performances in both periods.
PROFITABILITY RATIOS
Basically, generating income is the aims of most businesses; one of the ways to determine if an organization is successful is in its profitability (Elliott, 2008). The sales of a company which is illustrated in figures as percentages are better for easy juxtapositions with the sales of their competitors and their past figures.
1. Return on capital employed (ROCE): This is an essential part of the profitability ratio. It is a tool used to know the efficiency and effectiveness of an organizations available resource. According (McLaney, 2012), ROCE is the basic scope for reviewing a company’s performance overtime, indicating the connection between the income realized within a certain period and the ordinary capital invested in the business. The formula is given as:
ROCE = Operating profit x 100%
Share capital + Reserves + Non-current liabilities From the data given, it is seen that there was a high rate of return on the capital employed of 45% in 2010 compared to 2011 which has 25%. This shows a decrease of 20% in the company in ROCE. The probable reason for the decrease in the ROCE might be
MODULE : PGBM01
MODULE NAME: FINANCIAL MANAGEMENT & CONTROL
WORD COUNT: 3,392
PART A REPORT
TO: Board of Directors
FROM: AKINCOM CONSULTANT
DATE: 23rd January, 2014
SUBJECT: Evaluation of performance of Solvent PLC
PART (A)
INTRODUCTION
This report is submitted to Akincom Consultant for the evaluation of the performance of the Solvent PLC for the year 2010 and 2011. On the basis of the data given, the performance of the company will be assessed for the two periods in the areas of its profitability, liquidity, efficiency and solvency. Different analysis is conducted and appropriate recommendation is given along with some basic definitions and formulas adopted for the analysis of the performances in both periods.
PROFITABILITY RATIOS
Basically, generating income is the aims of most businesses; one of the ways to determine if an organization is successful is in its profitability (Elliott, 2008). The sales of a company which is illustrated in figures as percentages are better for easy juxtapositions with the sales of their competitors and their past figures.
1. Return on capital employed (ROCE): This is an essential part of the profitability ratio. It is a tool used to know the efficiency and effectiveness of an organizations available resource. According (McLaney, 2012), ROCE is the basic scope for reviewing a company’s performance overtime, indicating the connection between the income realized within a certain period and the ordinary capital invested in the business. The formula is given as:
ROCE = Operating profit x 100%
Share capital + Reserves + Non-current liabilities From the data given, it is seen that there was a high rate of return on the capital employed of 45% in 2010 compared to 2011 which has 25%. This shows a decrease of 20% in the company in ROCE. The probable reason for the decrease in the ROCE might be
References: ACCA, 2009. ACCA F9 Financial Management. London: BPP Learning Media Ltd. Anon., 2013. Ready Ratios. [Online] Available at: http://www.readyratios.com/reference/profitability/ Anon., 2013. Small Business Development Corporation. [Online] Available at: http://www.smallbusiness.wa.gov.au/efficiency-ratios Arnold, 2012. Corporate Financial Management. Essex: Pearson Education Limited. Bierman, H., 2009. An Introduction to Accounting and Managerial Finance : A Merger of Equals. 22 ed. London: World Scientific Publishing Company, Incorporated. David Alexander, A. B. a. A. J., 2009. International Financial Reporting and Analysis. Bath: Cengage. Elliott, A. B. a. B., 2008. Financial Accounting: An Introduction. 1st ed. London: Pearson Education. India, I. o. C. a. W. A. o., 2008. The Management Accountant. Volume 43. InvestingAnswers, 2014. Economics. [Online] Available at: http://beta.investinganswers.com/financial-dictionary/economics/fixed-costs-2948 Koen Milis, M. S. a. R. H., 2009. Evaluation of the applicability of investment appraisal techniques for assessing the business value of IS services. Netherlands: Leuven : Katholieke Univ. Leuven, Faculty of Economics and Applied Economics. McGrawHill, 2011. Financial Analysis & Decision Making. New York: McGrawhill Companies Inc. McLaney, P. A. a. E., 2012. Accounting and Finance for Non-Specialists. 8th ed. London: Pearson Education Limited. Milis, K., 2008. Evaluation of the applicability of investment appraisal techniques. DEPARTMENT OF DECISION SCIENCES AND INFORMATION MANAGEMENT (KBI). Moose, C. J., 1997. Budgeting. s.l.:Rourke Publishing Group. Peter Atrill, E. M., 2013. Accounting and Finance for Non Specialists. London: Pearson Education Limited. Powell, H. K. B. a. G., 2009. Understanding Financial Management: A Practical Guide. 2nd ed. New york: John Wiley & Sons. Siegel, J. K. S. a. J. G., 2008. Financial Management. 3rd ed. Sydney: Barron 's Educational Series. Tayles, M., 2010. ACCA Homepage. [Online] Available at: http://www2.accaglobal.com/archive/sa_oldarticles/studentaccountant1/43925 Tom Groot, F. S., 2013. Advanced Management Accounting. In: s.l.: Pearson Education, p. 232. Van, D. E., 2011. Financial Analysis and Decision Making. 1st ed. New York: McGraw-Hill. Walther, L. M., 2013. Financial Accounting. 2013 ed. London: CreateSpace Independent Publishing Platform.