Financial Report
Uploaded by short + black on Aug 05, 2007
Financial Report
Introduction
Financial reports convey information which involve with assisting and analyzing and also interpreting the financial position of an organization. This report will examine three areas of analysis which incorporate profitability, effectiveness of management policies and the financial stability of the business.
Profitability
Profitability ratios are seen as the businesses ability to earn income within the present financial formation of the business.
Net Profit Ratio
The net profit ratio designates the ability of the business to generate a return on the owners’ investment. For a business to have a high net profit ratio, this means that their operating revenues are high and that their operating expenses are low. If a business has a low net profit ratio, complications arise as it means that they may have higher expenses and that their selling margin is low. Benchmarks for net profit for the three year period were as follows; for 2007 it was 8.5%, for 2006 it was 9.00% and for 2005 this was 8.00%. These benchmarks, when compared to that of Highway Industries are lower which means that Highway Industries is performing at a consistent level. Since 2005, the net profit ratio has risen from 8.44% to 11.88% in 2006. Although it was still above the industry average, the net profit ratio dropped in 2007 by 1.85% to 10.03%. Whilst the business may have dropped in percentage from 2006 to 2007, it rose 1.59% since 2005. This positive net profit indicates that the business has high revenues and low expenses.
Rate of Return on Owners Equity Ratio
Rate of return on owners’ equity ratio specifies the return to the owner on the amount invested in the business. For a business to have a high return on equity ratio means that the business may indicate management efficiency. For the business to have a low ratio, could mean that their management is inefficient and that it could be beneficial for them to invest elsewhere. The rate of return on owners’ equity ratio is significant for the owner it will be evaluated with other returns on different types of investments to verify if the business is a worthwhile investment opportunity. Highway Industries is impressively above the industry average, and has maintained this over the three year period. As with the net profit, this figure has decreased since 2006, but is still increasingly higher than the set benchmark which is set at 12.00% for 2005, 11.00% for 2006 and 13.00% for...