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1.Introduction
1.1.The balance sheets and profit and loss accounts for SmartChip PLC have been analyzed for the years 2003 to 2006, and compared with the industry average.
1.2.The financial performance of SmartChip PLC has been based upon calculating financial ratio’s which are detailed below.
Profitability
Efficiency
Liquidity
Investment
Gearing
1.3.Comments are made upon the results of the ratios and where necessary, areas requiring further investigation are highlighted.
2.Results of Ratios Calculated
2.1.The results of the ratios calculated are summarized in Appendix 1.
3.Evaluation of Business Financial performance
Financial statements can provide an indication of financial position but are not really useful to bench mark a company. Financial ratios are useful indicators of a company’s performance and financial situation. Ratios are calculated from financial statements and are used to analyze trends and compare the company’s financials to another company’s.
3.1.Profitability
Profitability ratios provide a measure of profit and performance over time. A company with a higher profitability ratio than its competitors is running more efficiently.
The gross profit percentage while above the industry sector norm in 2003 has been decreasing approximately 2.3% per annum with a further decrease in 2006. This will be an indication the cost of sales has increased. This can be seen Materials/Sales has risen 8%, Wages/Sales has risen 2.5% and sales growth has decreased from 2003/2004 8.6% to 2005/2006 4%, although Overheads/Sales are down 12.5%. This is an area for investigation as gross profit should be maintained as high as possible.
Net profit has risen from 20 ...