Financial Ratio Analysis of Metalrax Plc.

1.IntroductionWhat is the proper standard to assess a telephoner?s surgical procedure and financial position? Lots of answers could be accustomed because of different measures. For example, reading an annual report, readers whitethorn find that the tidings ?profit? has several meanings. ?Measures of favorableness,? Philip O?Regan (2005) states in his book, ?will be important for a variety of users?. Since different user has different method to judge a company?s ? favorableness?, shareholder would choose return on shareholders? funds to get to a decision whether invest a company or not; meanwhile, a bank would consider a company?s return on capital employed forrader lending money. With significant accounting ratios, this paper assesses the profitability, liquidity, management of workings capital and the capital structure of Metalrax Group plc and fin exclusivelyy compares performance and financial position between two companies in the same(p) industries.

2.ProfitabilityFigure 2.1 apparently shows that although Metalrax does adjoin its sales tax income by 5.35%, all the ?profits? declines from 2004 to 2005. The relatively increase in sales revenue does not help the company increase the gross profit, because damage of sales have increased by 10.04% which is nearly doubly larger than sales revenue. It primarily results in the decrease of profitability ratios. Return On Shareholders? Funds, Return On Capital Employed, wage Profit Margin and Gross Profit Margin.

Two factors whitethorn explain why cost of sales has increased so sharply. Increasing fix cost may induce to increase cost of sales. In 2005, Metalrax invests 3.7 million on set(p) assets that enormously increase cost per unit. Therefore, Metalrax should consider selling any fixed assets, which are excessive to the requirement of productivity. The second factor may be the growing variable cost per unit. Employees may necessitate for increasing their wages because of the company?s profitability in last year. Raw material price may hold water as well.

The situation...

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