Accounting and finance for managers Essay Example | Topics and Well Written Essays - 1250 words

Accounting and finance for managers - Essay Example The Return on Capital Employed ratio is used to analyse a company's position in terms of the return or profit it gains on the funds invested by the company's shareholdersIt shows the effectiveness of the company's management It shows the effectiveness and performance of the company's management to obtain more returns on the shareholders' investment. It is of importance to the company's management as well as investors and shareholders being a performance indicator for the company. The ROCE ratio for the Glaxo Smithkline plc is 102.78%, which shows that the company has been able to utilise the funds invested by shareholders in an profitable manner.The Asset Turnover ratio reveals the management's efficiency in utilising the company's assets towards sales and revenue generation (Meigs & Meigs, 1993). It is of particular interest to company's management in evaluating their policies and the revenue generation. The Glaxo Smithkline plc's asset turnover ratio is 90%, which shows that the sa les generated by the company proved to be 90% utilisation of the company's assets. It is a sign of an above-average performance of the company's management.The Gross Profit Margin Percentage evaluates the percentage of profit earned by a company on sales after the production and distribution activities (Mcmenamin, 1999). This ratio analyses the company's profit margin before accounting for various operating costs. This ratio is of critical importance to both the management and investors, in order to keep an eye over the company's income level and profit margin. The gross margin percentage for the company in consideration is 78.83%, which indicates that the company only loses about 22% of its sales revenue in the production and distribution activities. It is an indicator of the company's gross profitability. Net profit percentage 21.7% The Net Profit Marin Percentage ratio shows what percentage of profit a company earns on its sales (Mcmenamin, 1999). This ratio analyses a company's profitability after taking into account all the operating costs. The importance of this ratio is the same as that of gross profit percentage. The net profit percentage for Glaxo Smithkline is 21.7%, which means that the company loses about more of the gross profit in various selling and administrative expenses. Therefore, the company needs to revise its operating costs in order to gain much out of the actual gross profit. Current Ratio 1.5: 1 The current ratio measures short-term liquidity of a company in terms of its ability to pay off its short-term debts and liabilities (Meigs & Meigs, 1993) (Mcmenamin, 1999). It shows how much liquid assets a company owns against its short-term liabilities and obligations. The current ratio is of extreme importance to a company's short-term creditors for the purpose of a better evaluation of the company's liquidity position. The current ratio for this company is 1.5: 1, which means that the company owns about $1.5 worth of assets to pay off its short-term liabilities worth $1. Quick Ratio 1.3: 1 Quick ratio reveals the liquidity position of a company after keeping aside the value of stock (Meigs & Meigs, 1993). Therefore, it gives a quick review of a firm's liquidity position in terms of cash or the assets that can be quickly convertible into cash. It is of particular interest to the short-term creditors and suppliers of the company, as they need to evaluate a company's liquidity position and analyse how feasible it is for them to do business with the company. The quick ratio for this company is 1.3: 1, which means that after keeping aside the value of stock, the company still has $1.3 worth of assets to pay of its liabilities worth $1. Also, the difference between current and quick ratio shows that not most of the company's capital has been tied up in stock. Gearing Ratio 78.05% The Gearing ratio is an analyser of a company's long-term liquidity or solvency (Meigs & Meigs, 1