Briefing statement on the key performance indicators of Networking Solutions PLC
This briefing statement explains the key performance indicators of case study company - Networking Solutions PLC, by analysing the key ratios of Gross Profit and Net Profit Margin, ROCE, Current Ratio, Acid Test and Gearing. These ratios can be used to indicate and track key metrics of company performance including sales, debt, liquidity, asset utilization etc. The briefing statement concludes by highlighting limitations of using financial ratios to explain key company performance.
Briefing Statement Assignment (1000words)
Networking Solutions PLC is a successful company that has traded for 25 years. Still owned by the founder the company has grown from a simple Sole Trader at the East India Business Park, to a company on the brink of International expansion. This is a critical point in the life of the company and as a result, the owner needs to understand more of the financial operations – and before meeting with his accountant you have been asked to write a 1000-word briefing document to explain key performance indicators by analyzing the key ratios below:
• Gross Profit Margin
• Net Profit Margin
• Current Ratio
• Acid Test
Comment on the above ratios and highlight;
a) The relevance of the above ratios as indicators of company performance. (60 marks)
b) The limitations of using financial ratios to explain key company performance. (40 marks)
Key Learning Outcomes
- Demonstrate knowledge and understanding of what a briefing statement is.
- Gain insight into key ratios of Gross Profit, Net Profit Margin, ROCE, Current Ratio, Acid Test and Gearing, including analysis of their relevance as indicators of company performance.
- Understand the limitations of using financial ratios to explain key company performance.
Briefing Statement Assignment
1.0 EXECUTIVE SUMMARY
This briefing statement explains the key performance indicators of Networking Solutions PLC by analyzing the key ratios of Gross Profit and Net Profit Margin, ROCE, Current Ratio, Acid Test, and Gearing. These ratios can be used to indicate and track key metrics of company performance including sales, debt, liquidity, asset utilization, etc. The statement concludes by highlighting the limitations of using financial ratios to explain key company performance.
What is ratio analysis?
Ratio analysis refers to the use of financial ratios in the evaluation of firm performance and company health.
Types of ratios
1. Gross Profit Margin
Gross profit margin on its own refers to the amount of profit a company makes after subtraction of the cost of goods sold. One of the profitability ratios is gross profit as a percentage of revenue and it is commonly used to assess company performance when it comes to resource utilization during the production process such as efficient use of raw materials or labour. Used as a comparison with other companies in the same industry, a higher GPM indicates financial health. So, any decline in GPM would need to be investigated further to assess underlying reasons e.g. under-pricing, increase in the cost of materials or labour (Elliott and Elliott 2011).
|Gross Profit Margin Ratio|
|(Gross profit/revenue) x 100%|
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