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An overview of ratio analysis

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  1. Introduction
  2. Profitability ratio
  3. Short term liquidity
  4. Acid test ratio
  5. Working capital ratio
  6. Finance ratio
  7. Dividend cover ratio
  8. Dividends pay-out ratio

Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Without profit, there is no cash and therefore profitability must be seen as a critical success factors.

ROCE is decreased from 13.11% to 8.59% it means that store is not using its capital effectively to generate the profit A decreasing scope do not attract large amount of fresh funds. Generally a higher ROCE is better.

Gross profit is the profit made on sales of goods. It is a profit on turnover. In 2006 the gross profit is 33.70% which is slightly increased to 33.90% in 2007. It is good sign from the investor's point of view. It means that the management is able to handle the operating cost and other cost. Although it represents an improvement but it is not significant increase.

[...] Return On Ordinary Shareholders Funds (ROSF) ROSF is a measure of profit for the period which is available to the owners stack in a business Formula ROSF = Net profit after tax + preference shares (if any) X 100 Ordinary share capital + reserves Analysis The stores ratio is slightly increased in 2007 which indicates the store's effective utilization of funds. The higher the ratio the more profitably the shareholders funds are invested in business. Dividend Cover Ratio The dividend cover ratio tells us how easily a business can pay its dividend from profits Formula Dividend Cover = Profit for shareholders Total Dividend Analyses On average this ratio should be 1.5 to The dividend cover ratio for the store is slightly increases in 2007 it indicate that the most of the earnings are being retained and reinvested in the business. [...]


[...] Formula Current ratio = Current assets Current liabilities Analysis Generally if a business has a current ratio of between 1.5 and 2.0 it is said to have enough liquid resources. If a ratio is below 1.5 it might agreed that business doest not have enough working capital. Retailer often have very low current ratios perhaps this is because they hold fast selling stock and they generate cash from sales. Because our store have a current ratio 0.88 in 2007, it means that the store have not enough working capital to fulfill the obligations. [...]

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