The author also researched many useful websites and journals with regards to accounting ratio analysis. Also all formulas used throughout the report can be found in the appendices section found at the closing part the report. .
3. Findings.
3.1 Ratio Analysis.
According to Southworth, J (1997) financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Profitability ratios, liquidity ratios, working capital efficiency ratios and investment ratios will all be a part of an in depth analysis of Dickie Dirt's financial situation.
3.2 Profitability ratios.
Profitability ratios is used in accounting ratio analysis as it can work out how profitable a business is, and therefore identifying the attractiveness of investing in Dickie Dirt's Ltd. The first profitability ratio to be discussed is gross profit margin. As Glautier & Underdown stated, the gross profit margin ratio tells the profit a business makes on its cost of sales, or cost of goods sold. For 2000 Dickie Dirt showed a gross profit margin of 66%. This rose steadily to 74% in 2001 and 81% in 2003. This high gross profit margin indicates that the business in question can make a reasonable profit on sales, and showing by the trend over the past three years, Dickie Dirt seems to earn considerable profit on sales alone. Net profit margin according to Solomon, E (1997) indicates how much profit a company makes for every £1 it generates in revenue. Profit margins vary by industry, but all else being equal, the higher a company's profit margin compared to its competitors, the better. For 2000 Dickie Dirt's net profit margin was 9% with it then a drop of one point to 8% in 2001. However in 2003 it rose two percent from the previous year indicating that the company is increasing profitability.
