P7 Illustrate the financial state of your selected organisationusing financial ratio analysis.

Ratio- this is a result of one number or quantity divided by another. Ratios are the simplest mathematical (statistical) tools that reveal significant relationships hidden in mass of data, and allow meaningful comparisons. Some ratios are expressed as fractions or decimals, and some as percentages. Major types of business ratios include Efficiency, Liquidity, Profitability, and Solvency ratios.

Ratios | Formulae | Description of each Ratio | 2012RatiosCalculations | 2013RatiosCalculations | Comment if figures show: Worse? Better? Much the same? | Gross profit Percentage | Gross Profit x 100 Sales | Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross profit and total net sales revenue. | 250/700x100=35.7% | 200/800x100=25% | The figures show that the gross profit percentage margin has decreased by nearly 10%. This might be because the business is paying more for the cars or they are selling the cars for a lower price which results in less revenue. | Net profit Percentage | Net Profit x 100 Sales | The net profit percentage is the ratio of after-tax profits to net sales. | 120/700x100=17.14% | 60/800x100=7.5% | Net profit percentage has decreased by around 10% as well. reasons for it decreasing could be that they were selling the cars for a lower price or the value of their inventory might have been decreased due to an economic slowdown. | Return on Capital Employed | Net Profit x 100 Owners Capital | Return on Capital Employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. | 120/35x100=342.85 | 60/60x100=100 | Return on capital employed has also decreased and this might be due to the fact that they had a high interest rate and also from tax.