Re: Analysis and interpretation of financial reports of Booker Enterprises.
I have examined the Profit and Los statement and Balance Sheets for the two year period of 1 July 1997 to 31 May 1999. The report deals with the earnings capacity, financial stability and some aspect of management efficiency as measure by various financial ratios. .
Earnings capacity and profitability.
After examining the past two years, it has been brought to my attention that your gross profit ratio has slightly declined by 4% from 66% to 62% of sales; however I would have to commend you for keeping your gross profit ratio above the industry averages 62% to 58% over the last two years.
Your net profit ratio pleasingly increased by 2% from 15% to 17%, but according to Australian Bureau of Statistics, you are a bit under the industry averages of 19%. To further increase your net profit ratio, I encourage you to keep on cutting down selling expenses to reach the industry average and with good fortune exceed it in the next account period.
The rate of return on total assets has been a satisfactory one as it is the same as the industry average of 20%. Too boost the rate of return on total assets, you are required to increase you net operating profit and decrease your average total assets. .
The rate of return on owner's equity has risen quite substantially from 18% to 27%, well above the industries average of 20%. This is a positive move in developing your business.
Overall, your earnings capacity and profitability has been quite pleasing and management objectives in this area are being achieved. However there is still a lot of work to be done. To achieve a better net profit ratio, you need to lower sales expenses, even though they are under the industry averages.
Financial Stability .
From recent results, Booker Enterprises has become a little unstable in this area. While there is no real threat now, but in the long run this could be a bit of a problem.