Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseNB:The figures for the company show a breakdown of cost of sales and highlightsbought in materials and services, and we will base this measure on that figure:Year X10.66:3.21x365 days= 75 daysYear X20.82:4.32x365 days= 69 daysFinished Goods Stock in DaysIn published accounts we would usually focus on total stocks ie: raw materials, work inprogress and finished goods.In this case the inter-firm comparison figures highlight finished goods and the companyaccounts show clearly the finished goods figure.It is expressed as:Stocks x 365Cost of SalesThis is a further measure of working capital management and relates to stock turnover.Controls need to be maintained so that liquidity is not sacrificed.Year X1Year X20.43:4.43 x 365 days=35 days 0.45:5.82 x 365 days= 28 daysNB: Based on total stocks we find:Year X1Year X20.55:4.43 x 365 days=45 days 0.60:5.82 x 365 days= 38 daysA further indication of company liquidity, can be assessed, by adding together stock anddebtor days, which indicates how soon stock is converted into cash.Other Measures of EfficiencyLabour costs, operating costs, distribution and admin costs all measured individually as a% of sales are useful ways of comparing company performance on an inter-firm basis.Significant differences provide a basis for considering why company profitability maydiffer from that of competitors.Labour cost as % of salesYear X1Year X20.98 : 5.38 x 100 = 18.22% 1.25 : 6.68 x 100 = 18.71%Operating costs as % of sales130
Analysis of the Operation and Financial Condition of the EnterpriseYear X1Year X24.43 : 5.38 x 100 = 82.34% 5.82 : 6.68 x 100 = 87.13%Distribution costs as a % of salesYear X1Year X20.49 : 5.38 x 100 = 9.11% 0.61 : 6.68 x 100 = 9.13%Admin costs as a % of salesYear X1Year X20.22 : 5.38 x 100 = 4.09% 0.27 : 6.68 x 100 = 4.04%Value Added – A Measure of ProductivityValue added per ‘£’ of employee costs is a true measure of employee productivity. It canalso be perceived as a measure of the way in which management have utilised the humancapital resource. It considers the company’s ability to mobilise its human assets. Valueadded is defined as: Turnover less all bought in materials and services.The primary ratio measuring overall may be analysed in more detail by using secondaryratios:Asset TurnoverProfit margin – net profit before interest and tax as a percentage of salesThese two separate factors or a combination of both, influence the return achieved by thebusiness entity.The Asset Turnover is a measure of utilisation and management efficiency. It indicateshow well the assets of the company have been used to generate sales or how effectivelymanagement have utilised the total investment in generating income.It is expressed as:TurnoverCapital EmployedYear X1Year X25.38 : 4.12 = 1.31 times 6.68 : 4.47 = 1.49 timesThe Profit Margin indicates how much of the total revenue remains to provide for taxationand to pay the providers of capital both interest and dividends.This return to sales can be directly effected by the management’s ability to control costsand determine the most profitable sales mix.It is expressed as:131
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Analysis of the Operation and Financial Condition of the Enterprise

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