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Unit 9 M4 Business

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For this task I will be evaluating the financial performance and positions of a business using the ratios analysis. I will be defining each of the ratios in full detail then I will state how the business can improve their ratios with reference from the Walthamstow Phone business. After that I will give my opinion on the current ratios stating if they are good and why.

The first ratio that I will be talking about is the profitability ratio. This is where businesses measure their performances. Profitability is the ability to make a profit; this will be the left over from all of the businesses income which has been earned, once it has been deducted from all costs and expenses which are related towards the earning income. The formulas used are; gross profit margin, net profit, expenses and return on capital employed. These ratios are used to …show more content…
This is where they use the gross profit internally as their aspect for when they are pricing their structure or externally to compare their previous years or other similar companies. The definition of gross profit is to show how much money a company can keep after they factorise in costs of goods that have been sold. The formula for this ratio is gross profit divided by the sales and then multiplied it by one-hundred. For this business their gross profit ratio was 32.2% which I feel can be improved if they were to simply increase their profit margins and the prices of their products.

The second ratio used in profitability ratio is the net to sales ratio. This is it the remaining profit after the costs of production, administration and financing have been deducted from the sales as well as the income of taxes have been recognised by the business. The formula for net to sales ratio is; net profit dived by the sales followed by multiplying it by one-hundred. The net to sales ratio for the business was 6.7% which I feel can yet again be improved by the

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