Colin Cars Report
F.A.O: Colin
2.1 Interpretation of ratios calculated.
Assessing stock turnover is important, gross profit is earned each time stock is sold. (Rouse: 2007).
The stock turnover ratio identifies the stock turnover period to be 151 days. This can be improved through management of stock and by improving buying practises. An immediate way this could be improved upon is to temporarily stop buying more stock until your current stock has been sold. Analysis of the purchasing patterns of customers could be carried out to identify ways to reduce the amount of stock. Through identifying the customer’s requirements stock could be minimised by selling obsolete stock at a discounted amount and only having vehicles on the forecourt that customer’s desire. Obsolete stock could be auctioned with a reserve price being set to minimise potential loss to the business.
The credit ratio identifies it is taking on average 66 days to pay creditors. A high number of creditor days indicate that there is insufficient cash readily available. (Rouse: 2007).
The creditor days can be improved by not making further purchases of stock on credit. Another way this can be improved is to have more cash available to pay creditors this can be achieved through taking fewer drawings from the business.
The gross profit ratio identifies the gross profit received after deducting the cost of sales from the sales figure. (Rouse: 2007).
The gross profit at year end is 50.93% therefore for every £1 of sales 50.93 pence of profit is made. The ratio shows that this is currently a good return.
However the gross profit could be improved by increasing the number of cars sold. This does need to be carefully ...