Business Accounting

2 February 2017

The net profit ratio is referred to as the net profit margin, its shows for every ? 1 made in sales how much is left as net profit after all expenses have been deducted. The net profit percentage for SIGNature’s business is 16. 66% that’s 17pence if you round it up.

The business is spending too much on expenses and need to cut down in order for this net profit to increase. Return on Capital Employed (ROCE) Net Profit before interest and taxCapital Employed? 100 73960149160? 100=49. 58% The Return on Capital Employed shows the capital that the owners invests in the business and the percentage of the investment is profit.The acid test is a harsher measure for a firms liquidity. Similar to the Current ratio it shows the amount of current assets in relation to the current liabilities however the acid test includes the stock too. SIGNature’s business acid test ratio is 1. 5, this means that for every ? 1 the business owes in short term debts its has ? 1.

Business Accounting Essay Example

75 in liquid assets. This figure shows the business can pay off it short term debts. Efficiency Debtors payment period CreditorsCredit Purchases? 365 41000444000? 365=33. 7 (34 days) The debtors payment period measures how long it takes for a the debtors of the business to pay the business back. SIGNature’s business only takes 34 days which is a month and a few days which is good for the business because the cash flow will be positive because it’ll be getting money every month.Credit payment period CreditorsCredit Purchases? 365 15500199800? 365=28. 3 (28 Days) The ratio measures on average how long it takes a firm to pay for goods and services bought on credit.

SIGNature’s pays of its creditor within a month in 28 days this good for keeping a good relationship with their suppliers, because the suppliers will trust them to pay them back and the business could afford to ask for an extension from them if they need it because of the trust. Rate of stock turnover Average stockCost of goods sold? 365 12000244200? 65=17. 93 (18 Days) This ratio measures the average amount of time an item of stock is held by a business, and is expressed in a number of days. The SIGNature business holds their stock for 18 days which is very good for the business because they are selling their stock every 18 days and making sales every month. D1 Introduction In this assignment I will write a conclusion to summarise the overall performance in Sharma and Ryan’s first year of business. Profitability The percentages Sharma and Ryan received in their profitability is good.The Gross profit percentage is 53% this is good because the business is making a majority of profit from every ? 1 in its sales in relation to the cost of making that sale.

The Net profit percentage is the only bad result in this ratio, at 17% the business is spending too much on expenses for the business however this figure can be changed if they make the overall expenses cheaper so the ratio can increase. The ROCE (Return On Capital Employed) percentage is also good, 50% is a reasonable figure for the return for the investor from the owner.This will the business ask for any loans if they need it form banks because this percentage will help get it from the bank. Overall the profitability of the business is good, from it first year of trading there are a few improvements it must make to make the business successful in the future. Liquidity The liquidity of SIGNature is excellent, the percentages are good and are keeping the business moving and not fall in major debts. The Current ratio is 2. 69, this is really good because the business has more than enough to meet it liabilities in relation to its assets of ? 2.

9 for every ? 1. The Acid test/ Liquidity ratio is a tougher measure of liquidity which includes the stock of the business, at ? 1. 75 for every ? 1 SIGNature has a good ratio for this too this is because it has liquid stock and can meet payments quickly when immediate payments are demanded. For the future of the business, these figures are good, in this type of market Sharma and Ryan has started in the business can have sudden costs and SIGNature can afford these costs. Efficiency The Efficiency figures for SIGNature’s business is reasonable, the days aren’t too long for each ratio.The Debtor payment period is 34 days, they get paid by the customers every month which will help with their cash flow and keep the business running. The Creditors payment period is another good percentage in the efficiency, Sharma and Ryan are able to pay their creditors off including suppliers so if there are times when the business don’t have money to pay back the suppliers they have a good relationship for paying them on time, they can ask them for an extension to pay later.

Finally The Rate of Stock turnover for the business is good too.Sharma and Ryan have an average time of 18 days where they sell their stock which really good because that mean every 18 days they sell their stock and increasing their sales. If the business carry on like this in future they are assured not to have any financial problems with their sales creditors and debtors. Conclusion Overall the financial performance for a start up business in this type of market for SIGNature is excellent, they are continuing to make sales and afford to pay their debts and will be successful in future.

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