SOLUTION: used to outpour organization ability

Sanchita ChatterjeeMARSHAL MOTORS1Table of ContentsBackground………………………………………………………………………………………………………………..2Profitability ………………………………………………………………………………………………………………..2Liquidity…………………………………………………………………………………………………………………….5Working capital management ……………………………………………………………………………………….6Solvency & risk…………………………………………………………………………………………………………..8Shareholder return……………………………………………………………………………………………………….8Overall financial evaluation………………………………………………………………………………………..10References………………………………………………………………………………………………………………..112BackgroundMarshal motors, public company based in United Kingdom, headquarter at Cambridge foundedat 1909, an automotive industry listed on London stock exchange. Marshal motors group isranked as the 7th largest company in motor dealing sector in United Kingdom. More than 150franchise round the globe as its strength is to grow the retail business by acquisition anddiversification. It is the only motor company in United Kingdom whose turnover is more than£ 2.3 billion per annum.ProfitabilityThe financial metrics which are used to outpour organization ability to make profit to itsoperation cost, shareholder’s equity, balance sheet asset over a period of time is known asprofitability ratio. Higher the profitability ratio, it is favorable for the organization .Some ofthe following ratio which is under profitability ratio are as follows:i. Gross Profit Ratio ii.iii.iv.v.vi.Operating Profit RatioReturn on investmentReturn on capital employedOperating expenseSales Growth i) Gross Profit ratioGross profit ratio measures the profit earned by the company after deducting all themanufacturing and other selling expenses incurred by the organization. It reflects thecompany efficiency of its resource utilization. Only the variable costs is taken intoconsideration while evaluating gross profit (Balogh, 2017).Gross profit ratio is evaluated by dividing Gross profit to net sales in a percentage form. £ in ‘000£ in ‘000Gross profit margin20192018ParticularsAmount (£)Amount (£)Gross profit260,801253,247Turnover2,276,1292,186,887 3 Ratio11.46%11.58% From the above it can be analyze that there has being decline in gross profit ratio by0.12% despite being increase in turnover by £ 89242 in 2019 ii)Operating Profit RatioOperating profit ratio reflect the relationship between sales and operating profit. Operating profit is the profit earned by the company before any interest or tax beingpaid.From the above it can be analyze that there has being hiked in the operating profit by 0.47% in comparison of last year 2018iii) Return on investmentReturn on asset ratio is also known as return on investment ratio. It reflects that the revenueearned by the company from its assets, shareholder fund. It is favorable when it is higherthan the historical track record. (Balogh, 2017) Operating profit margin20192018ParticularsAmount (£)Amount (£)Profit before tax29,58618,034Add: Finance Cost9,9439,568Earnings before interest and tax39,52927,602Turnover22,76,12921,86,887Ratio1.74%1.26% 4 Return on shareholders’investment20192018ParticularsAmount (£)Amount (£)Net Income15,57813,957Shareholders’ Fund2,02,3161,94,038Ratio7.70%7.19% From the above it can be analyze that there has being hiked in the return on investment by0.51%, which is better for the organization.iv) Return on capital employedThis ratio reflect the efficiency and the profitability of the capital of the organization.Potential investors, stakeholders, financial managers with the help of return on capitalemployed analyze the company strategy.ROCE= EBIT/ CAPITAL EMPLOYED. Return on capital employed20192018ParticularsAmount (£)Amount (£)Shareholders’ Fund2,02,3161,94,038Long Term Debt25,641641Shareholders’ Fund + Long Term Debt2,27,9571,94,679Earnings before interest and tax39,52927,602Ratio17.34%14.18% From the above it can be analyze that there has being hiked in the return on capital employedby 3.16% which is favorable for the organization.v) Operating expenseIt is evaluated by dividing operating expenses after consideration of depreciation byoperating income5vi) Sales growthSales growth is evaluated by subtracting present value from its past value. There hasbeen raise in sales growth in 2019.LiquidityLiquidity ratio reflects the company ability to pay its debt obligation along with its margin ofsafety. Measurement of liquidity ratio are as follows:- Current Ratio Quick ratioCurrent RatioThe ideal current ratio is 1:2. It reflects the company have required amount of resources tomeets its current liability within a span of 1 year time. Operating Expensesmargin20192018ParticularsAmount (£)Amount (£)Other operating expenses2,31,2152,25,645Turnover22,76,12921,86,887Ratio10.16%10.32% Sales growth rate20192018ParticularsAmount(£)Amount(£)Turnover of current year22,76,12921,86,887Turnover of previous year21,86,88722,31,979Difference89,242-45,092Ratio4.08%-2.02% 6 Current Ratio20192018ParticularsAmount (£)Amount (£)Current Asset5,59,0694,64,926Current Liability6,19,1295,09,583Ratio0.900.91 As the current ratio is 0.90 which is less than the ideal current ratio which means companyneeds more assets to meets its liability.Quick ratioAcid test ratio is also known as quick ratio. It is evaluated by summation of all cash, debtorand securities divided by its current liability. Acid (Quick) ratio20192018ParticularsAmount (£)Amount (£)Current Asset5,59,0694,64,926Inventory4,70,7003,84,005Current Asset – Inventory88,36980,921Current Liability6,19,1295,09,583Ratio0.140.16 The ideal quick ratio is 1, but marshal motors quick ratio is lower than the ideal one, henceneed to improve.Working capital managementIt is a business strategy to ensure that company has sufficient cash flow to meet its obligation.The operating success and financial of a company is dependent on its working capitalmanagement ( Karale, 2020).Some of its types are as follows:- Receivables days Inventory days Payable Days 7 Asset Turnover Cash operatingcycleReceivables daysReceivable Days 2019 2018Particulars Amount (£) Amount (£)Account Receivables 87,462 78,950Turnover 22,76,129 21,86,887Ratio 14.03 days 13.18 daysInventory daysInventory Days 2019 2018Particulars Amount (£) Amount (£)Inventory 4,70,700 3,84,005Cost of Goods Sold 20,15,328 19,33,640Ratio 85.25 days 72.49 daysPayable daysPayable Days 2019 2018Particulars Amount (£) Amount (£)Accounts Payable 5,78,010 4,92,387Cost of Goods Sold 20,15,328 19,33,640Ratio 104.68 days 92.94 days Asset Turnover Ratio8 Asset Turnover Ratio20192018ParticularsAmount (£)Amount (£)Turnover22,76,12921,86,887Total Asset9,50,6698,14,684Ratio2.39 times2.68 times Cash operating cycle Cash Operating Cycle20192018ParticularsAmountAmountReceivable Days14.03days13.18daysInventory Days85.25days72.49daysPayable Days104.68days92.94daysReceivable days +Inventory days – Payabledays-5.4 days-5.4 days Solvency & riskIt helps to determine its long term obligation by the organization. The higher the solvency andrisk ratio the higher the financial risk and higher the leverage. Interest Coverage Ratio is oneof the type of solvency and risk ratio. Interest Coverage Ratio20192018ParticularsAmount (£)Amount (£)Earnings before interest and tax39,52927,602Financial Expense9,9439,568Ratio3.98 times2.88 times Shareholder return9The financial raise in the company due to raise in the company stock price, divided overa period of time is the shareholder’s return. Some of the shareholder return ratio are asfollows:-i) Earnings per shareii) Price earnings Ratio.i) Earning per shareIt indicates earning made by the company for its ordinary shareholder and evaluate thecorporate value. Higher the EPS the higher the investors are ready to pay for the stock. It ismeasured by dividing net profit by total number of outstanding shares. Earning per share20192018ParticularsAmount (£)Amount (£)Net Income155,7813,957Number of Shares780,9777,736Earnings per share19.917.20 There has been hiked in the EPS by 2.74%, which indicates company is rising.ii) Price Earnings ratioPrice earnings ratio helps us know whether the company’s price of the share is undervalued orovervalued. Higher the EPS depicts that higher rate of return in future. It helps in stockvaluation. Price Earnings Ratio20192018ParticularsAmount (£)Amount (£)Market Price at year end156.5156Earnings per share19.917.2Price Earnings Ratio7.859.07 10Overall financial evaluationFinancial evaluation helps us to determine the financial benefit, rate of return with that of thecost. It helps us in decision making. Capital gearing ratio is a type of financial evaluation ratio.Capital Gearing RatioThe amount of debt company owes in compare to its equity is known as capital gearing ratio. Gearing Ratio20192018ParticularsAmount(£)Amount(£)Long term debt5,0245,665Shareholders’ Fund + Long TermDebt2,27,9571,94,679Ratio2.20%2.91% Overall we can analyse that company efficiency is making profit out of sales and profit fromthe revenue. EPS paid by the marshal motors is higher than the industry rate. The above ratiowill reflect the main core areas of improvement and increment of profitability by efficientutilization of resources. (Thacker, Witte & Menaker, 2020)11ReferencesBalogh, A. (2017). Financial Ratios for Accounting Research. SSRN Electronic Journal.https://doi.org/10.2139/ssrn.3053402Karale, U., 2020. Financial Statement Analysis: Definition, Meaning and Multi-step IncomeStatement; Methods of Financial Statement Analysis Continued..; Ratio Analysis:Definition, Meaning, Importance and Limitations; Ratio Analysis: Types of Ratios:Liquidity Ratios and Interpretation; Turnover or Activity or Efficiency Ratios;Profitability Ratios; Solvency or Leverage Ratios; Ratio to Balance Sheet: Simple Sumon Preparation of Balance Sheet; How to Prepare Balance Sheet from AccountingRatios: Simple and Easy Sums ….Mmhplc.com. 2021. 2019. [online] Available at: [Accessed 27 February 2021].Mmhplc.com. 2021. Home. [online] Available at: [Accessed 27February 2021].Mmhplc.com. 2021. Results centre. [online] Available at: [Accessed 27 February 2021].Thacker, P., Witte, R., & Menaker, R. (2020). Key financial indicators and ratios: How to usethem for success in your practice. Clinical Imaging, 64, 80-84.https://doi.org/10.1016/j.clinimag.2020.03.015