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Evaluation of Business Performance

            Profitability is the ability of the business to generate a profit as compared to a base such as assets, sales and capital. Liquidity is the ability of a business to meets its short term obligations when they fall due. In 2014 the business experiences an inflow of customers but their net profit isn't improving as sales have increased between 2012 until 2014. It seems that net profit has decreased between 2012 until 2014. This shows that the net profit margin has in fact not improved. However gross profit margin as increased between 2012 and 2014. This can indicate that the business has probably applied a mark-up to its stock, this impacts liquidity as it would result in an increase in selling price. However if the sales increased selling decreases this will increase the average numbers of days it took to convert stock into cash which can lead into a deterioration of liquidity in Sacko's sports store. The reason why net profit isn't improving could be due to the fact that the owner could be spending a lot more money on expenses or has found cheaper stock.
             Furthermore, it shows that the return on assets has decreased whilst the asset turnover has increased. The return on asset measures how efficiently the business uses its assets to earn a profit where asset turnover measures how many times the business turns its assets into sales revenue. The owners return on assets have gone down from 12% to 8% in those 2 years, this in fact shows that the owner has a poor expense control and is using more assets to earn the same level of profit. The increase in asset turnover can be from the increasing sales of Sacko's sport store. .
             In 2014, the business experiences an increase in debt ratio from 40% in 2012 to 65% in 2014 where as returns on owners investment experiences a decrease. Debt ratio measures how reliant the business is on external funds to finance the assets of the business where as returns on owner's investment measures how efficiently the business uses the owners invested capital to earn a profit.


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