Financila Performance and Positioning Assignment

Financila Performance and Positioning - Assignment Example A projected profit and loss account of Clinton Cards plc has also been included in this part to add to the analysis. Shareholders need to analyse the management's performance and efforts put into the company affairs through the financial results so as to realise its strengths and weaknesses. Riahi-Belkaoui (1998, p11) says, "the profitability ratios portray ability of the firm to efficiently use the capital committed by stockholders and lenders to generate revenues in excess of expenses". Therefore, the analysis for the shareholders has been done with the help of following profitability ratios: The above chart depicts the profitability ratios for Clinton Cards plc indicating the financial performance of the company over the last five years. Shareholders are interested in the company's profit records and being the real owners of the firms, they constantly need to appraise the company's performance. If the company is able to generate a stable profit for its shareholders out of its business activities, then it is said to be a good performer in the financial sense. The Gross Profit Margin Percentage evaluates the percentage of profit earned by a company on sales after the production and distribution activities (Mcmenamin, 1999). It shows how well the company manages its expenses so as to attain maximum profit out of its total sales. Clinton Card plc's gross profit ratio shows that the company is sustaining a stable profit margin with a slight increase in profitability. It further illuminates that the company manages to keep about 11% of its total sales revenue out of all the production and distribution expenses. This can also be inversely stated that the company loses about 89% of the total turnover in meeting cost of sales. The Net Profit ratio shows what percentage of profit a company earns on its sales (Mcmenamin, 1999). It reveals the profit retained by a company after accounting for its various operating costs. The difference between the company's net and gross profit ratios indicate the amount of profit foregone by them in the course of meeting various selling and administrative expenses. Thus the above graph shows that the company manages to retain about 6% of the total sales after accounting for various operating costs. The company's net profit margin is also rising sparingly at a stable rate showing the management's efficiency in managing costs. Riahi-Belkaoui (1998, p11) says that the return on capital employed ratio "indicates how efficiently the capital supplied by the common stockholders was employed within the firm". Clinton Card plc's return on capital employed ratio reveals that the company is having a slightly fluctuating rate of profit on the funds invested by the shareholders. However the rate of fluctuation is not high and thus the graph shows that the company gains profit as about 30% of the total equity funds. The return on asset ratio indicates the returns or profits generated after utilising the financial resources of the company determine the company's financial performance throughout the year (Meigs & Meigs, 1993). The company in consideration has had a significantly