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

Accounting and finance for managers - Essay ExampleThe Return on Capital Employed dimension is used to canvass a companys position in terms of the return or profit it gains on the funds invested by the companys shareholdersIt shows the effectiveness of the companys precaution It shows the effectiveness and performance of the companys management to obtain more returns on the shareholders investment. It is of magnificence to the companys 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 adapted to utilise the funds invested by shareholders in an profitable manner.The Asset Turnover ratio reveals the managements efficiency in utilising the companys assets towards sales and revenue generation (Meigs & Meigs, 1993). It is of particular touch to companys management in evaluating their policies and the revenue generation. The Glaxo Smithkline plcs asset turnover ratio is 90%, which shows that the sales generated by the company proved to be 90% utilisation of the companys assets. It is a sign of an above-average performance of the companys management.The Gross Profit Margin Percentage evaluates the percentage of profit earned by a company on sales by and by the production and distribution activities (Mcmenamin, 1999). This ratio analyses the companys 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 companys income level and profit margin. The realise margin percentage for the company in consideration is 78.83%, which indicates that the company only loses around 22% of its sales revenue in the production and distribution activities. It is an indicator of the companys gross profitability.Net profit percentage21.7%The Net Profit Marin Percentage ratio shows what percentage of profit a company earns on its sa les (Mcmenamin, 1999). This ratio analyses a companys 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 contains to revise its operating costs in order to gain much out of the actual gross profit.Current Ratio1.5 1The 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 companys short-term creditors for the purpose of a better evaluation of the companys liquidity position. The current ratio for this company is 1.5 1, which means that the com pany owns about $1.5 worth of assets to pay off its short-term liabilities worth $1. Quick Ratio1.3 1Quick ratio reveals the liquidity position of a company after keeping forth the value of stock (Meigs & Meigs, 1993). Therefore, it gives a quick review of a firms 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 companys 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 companys capital has been tied up in stock.Gearing Ratio78.05%The Gearing ratio is an analyser of a companys long-term liquidity or solvency (Meigs & Meigs, 1