Current ratio shows how many assets a business has compared to liabilities. The industry average for current ratio is 2.5:1, meaning Khalida’s fashion company has been above average for the past three years, the business is doing better than expected as they have a higher average. In 2011 the ratio was 2.7:1 and it has increased by 0.2 meaning that the improvement is better than expected. If the ratio was 1:1 this would be bad because it would make it hard to pay back the creditors. It should be between 1.5 it means they would have enough to pay back the creditors. It is good that the industry average is so high however it could be better for the business if it was lower so the money could ...view middle of the document...
If it is high it show’s they are controlling their finances well.
Gross profit turnover=100000(gross profit)150000(turnover)×100=67%
Net profit percentage measures the relationship between the profit made and the amount of sales after expenses have been taken off. The industry average for net profit percentage is 30%, over the last three years the business has been below average therefore it was closest to the industry average in 2012 and was at its lowest in 2011. But with this steady increase, it shows they are making progress towards their target which is 29%. If a business has a high gross profit percentage but a low net profit percentage, its operating costs are too high as they are taking too much profit from the business
Net profit percentage=44700(net profit)150000(turnover)×100=29%
Return on capital employed: is considered to be the best way of analysing profitability. The return of capital employed tells you how much money made by the business compared to how much money’s been put into the business. The industry average for return on capital employed is 47%, for the past three years Khalida’s fashion company has been higher than the average in 2011 it was at its highest at 49% and has dropped one per cent in 2012 and 2013(48%). It is good that its higher than the average because it means that it is better than the average company in the same...