Blue Inc. – Perform Ratio Analysis to Measure the Profitability, Liquidity and Efficiency of a Given Organisation
Unit 5 P5: Perform Ratio Analysis to Measure the Profitability, Liquidity and Efficiency of a Given OrganisationIn this part of unit 5 I am going to do a ratio analysis for Blue Inc. Ratio Analysis covers three areas, profitability, lucidity and activity. Profitability rations measure how much profit an organisation makes. Liquidity ratios calculate the organisation’s ability to turn assets into cash in order to pay debts, and activity ratios look at things like how long it takes for stock to be turned into cash.Profitability Gross profit marginGross Profit/Sales x 100 = 47.80%430,200/900,000 x 100 = 47.80%Gross profit Margin is a companys revenue minus its cost of goods sold. Grossprofit is a companys profit after selling a product they sell and deducting thecost need to produce it.  This is a useful tool to use within a business to measuretheir performance.2. Net profit marginNet Profit/Sales x 100 = 10.74%96,670/900,000 x 100 = 10.74%Net Profit Margin can tell you how much revenue a business makes before tax.The higher the percentage the more revenue the business will keep therefore the
higher the percentage the better the company is.3. Return on capital employed (ROCE)Net Profit/Capital Employed X 100 = 80.87%96,670/119,536 x 100 = 80.87%Return on Capital employed (ROCE) is a measure of how much a business canget back from their investments. If a business has a high ROCE, it shows thattheir business is very efficient as they are putting their money from this towardsgoods and stock or other investments which would lead to a percentage rise.Liquidity4. current ratioCurrent Assets/Current Liabilities = 0.76 : 156,800/74,934 = 0.76 : 1Current ratios are used to determine a business’s ability to meet its short-termdebts owed to another business. The smaller the Ratio is, the better the Blue Inc will be at paying back their short term loans in the future. This is therefore useful as if they are paid back quickly it show that you are reliable and may not have to pay as much due to interest.5. Acid test ratioCurrent Assets – minus Stock/Current Liabilities = 0.35 : 156,800 – 30,200/ 74,934 = 0.35 : 1Acid test ratio can be very helpful for a business to determine whether they have