Efficiency Ratios: Efficiency has been highlighted as a key financial objective for each company – as it is inherent in optimising profit from any business and helping sustain core business – which is the primary objective of both groups. It is also a good indicator of healthy cash flow management – a specific Sainsbury’s objective. Efficiency ratios reveal how effectively a company uses its assets and liabilities and is a good general indicator of how well the day to day operations are managed. (McLaney, 2009) Overall analysing the figures in Tables 5&6 – there is very little in the way of dramatic increases or decreases in efficiency over the period in question. A key ratio used to measure overall business / sales performance, however, is …show more content…
Receiving payment after 14.22 days whilst only settling with suppliers after 66.51 days (in 2013). Compare this with Sainsbury’s whose settlement period for trade payables is 45.07 days in 2013. Their settlement period for trade receivables is almost 3 times less than Tesco’s however – this may be due to the proportion of their business which is based on over the counter immediate transactions relative to Tesco. The basic aim of any business is to maximise cashflow by getting payment in as soon as possible for goods sold whilst delaying paying for goods purchased as long as is possible and reasonable. By Tesco delaying paying suppliers for an additional 21 days more than Sainsbury’s it is effectively availing of free finance for an additional 3 weeks. Going some way to achieving their objective of ‘generating positive free cash flow’. (This figure may be skewed somewhat by the breakdown of ‘Trade Payables & Others in the financial statements. Using the breakdown figure from the notes delivers a much closer figure for both companies). Tesco have been criticised, however, in recent years for extending their payment terms for suppliers, particularly of non-food items. (IBE, 2013) Sainsbury’s relatively shorter settlement period may reflect a more ethical standpoint in terms of fair supplier treatment – despite some reports to the contrary (IBE, 2013). Unfortunately Sainsbury’s are missing out on available free finance and are therefore not fully meeting their strategic objective of maximising cash
Table C projects the break even analysis in both units and dollars as a basis for further projections. As seen in Table C substantially larger sales are required to break even.
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Efficiency – could be inefficient due to lack of competition or could be higher due to availability of high profits.
We all know Tesco as a food retailer, and we know that they are in constant competition with other retailers such as Sainsburys and Asda, yet we do not know much about what goes on beyond the shelves and the tills, the marketing plans and the day to day tactics that have to be devised to stay the number one food retailer in the United kingdom today.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)
For operations management to be successful, the function of the operation must be first be defined. The degree to which this is achieved is a measure of effectiveness, the key objective of operations management. Efficiency is less important since there is no point in which carrying out an irrelevant, or worse damaging, activity effectively. Effectiveness means achieving objectives, efficiency means consuming minimum resources. While both are desirable, the former is of overriding importance.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
Efficiency – Global strategy enables the company to leverage on the economies of scale and scope. (O'Farrell, 2005)
Costco has been a strong company for many years. Asset utilization/ efficiency ratio is important for evaluating this company because this ratio is frequently used to compare a company’s efficiency over time. In accounting, asset is an economic resource, which means that anything that is capable of being owned or controlled to produce value has positive value to the company, is considered an asset. The more efficient Costco is with asset management, it shows how well they use their assets to generate revenue. A gain in revenue does not mean they are making profit, but part of the company’s goal is to maximize profit. The main assets we use to evaluate asset utilization are account receivable, inventory, and fixed asset, cost of goods sold, sales and total asset.
Efficiency can also be seen in the work load of a given employee. Take for example the fol...
Based on past four years Amcor Limited’s financial data, we summarized the profitability, asset efficiency, liquidity, and gearing of the company. The profitability of the company can be expressed in the profit margin ratio and return on equity ratio. The profit margin ratio over past four years increased from 12.53% to 14.67%. Another ratio which is return on equity ratio also increased from 29.5% to 46.2% over the past four years. According to this result, the company has better control over its cost as the profit margin ratio increased and generates more profit from money that is invested by shareholders. The next analysis that should be considered is asset efficiency. The first ratio in asset efficiency is asset turnover ratio which increased from 1.00 in 2010 to 1.13 in 2011 and fall down into 1.04 in 2013. This result indicates the company was poor in using its asset to generate revenue. The other ratio is receivables turnover which increased from 7.06 in 2010 to 7.34 in 2012. However...
It is important to understand how the profit margins of the company have been earned and this can help predict the prospects of survival or otherwise when bad times