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The financial information that Nana collected is as follows: Polish Fine Foods Polish Cuisine Imports Difference off_PC Solvency Ratios Current Ratio 1 . 70 1 . 50 0. 20 Acid Test 1 . 20 1. 10 0. 10 Profitability Ratios Gross Profit Margin 31 26. 6% 5 Net Profit Margin 10% 8. 1% Return on Capital Employed 72. 5% 59. 5% 13% Performance Ratios Stock Turnover 31 days 42 days 11 days Debtors Collection Period 45 days 49 days 4 days Asset Turnover 6 4 2 In the table above, I’ve also included the column with the difference between the ratios of Polish Fine Foods and Polish Cuisine Imports in order to make it easier to compare them.
In order for Nana to be able to monitor her financial performance using ratio analysis, she needs to understand the ratios she has produced in a context. The context either needs to be in relation to ratio analysis conducted previously and collected over a period of time and this usually takes years; or it can be done in comparison with a direct competitor of Nana. So, in this assignment I’m going to analyses Mania’s ratios using data from the table which are the ratios for Polish Cuisine Imports. Solvency Ratio Analysis Current ratio is the first solvency ratio that I’m going to use.
The current ratio measures a company’s current assets against its current liabilities. The current ratio indicates if the company can pay off its short-term liabilities in an emergency by settling its current assets. From looking at the table, I can see that polish Fine Food’s current ratio was 1. 70. This means that for each El . 00 owned they have El . 70 current asset. This shows that the business has enough cash to be able to pay its debts, but not too much capital is tied up in current assets which could be invested into the business. However, Mania’s