Introduction: Business corporations and entities execute their business plans for the achievement of financial targets within specific period generally in a business year through the utilization of resources to enhance the image of the company in the external business environment. Financial results as reflected in the annual financial statements and reports along with management discussion and analysis serve as an indicator for the evaluation of the financial results and their comparison with other similar business companies. Financial ratios are tools for the interpretation of financial statements to provide a basis for valuing securities for the appraisal of financial results and management performance of the business companies.
The designing and building of financial ratio calculations gives a mechanism for the financial modeling exercise for the company under consideration and to enable robust analysis through the financial results. Four types of financial ratios which include performance ratios, working capital ratios, liquidity ratios and solvency ratios help in the evaluation and analysis of the business corporations. The financial ratios for the two companies that are Higginson Chemicals Plc and Henry Group Plc for the year 2011 and its comparison with the year 2010 will provide sufficient data for the formulation of results and conclusions, the same will be helpful in revising the business strategies for the achievement of better financial results in the subsequent periods.
Prepare financial ratios for both years: The financial results of company one Higginson Chemicals Plc, a manufacturer of pharmaceutical products has shown a significant performance in the year 2011 as compared to that of the year 2010 assets of the company both non-current assets and current assets have shown increase as 5% increase and 46.01% increase, respectively.
Equity and liabilities have also demonstrated an increase of 24.81% increase from the year 2010 to the year 2011 which reflects that the company has formulated its business strategies as on the basis of long term as well as on short term basis. The financial ratios that is a ratio between turn-over and cost of sales has shown an increase of 14% age which is less than that of an increase of 29.68% increase in the total assets of the company during the period.
An increase of non-current liabilities equivalent to 26.47% is less than that of the current liabilities that is 62.4% which shows that the immediate future of the company is very tough in the business environment and in the competitive market for the pharmaceutical products. An encouraging factor for the company is that the bank over-drafts have decreased from the previous level of 152 million £ in the year 2010 which has decreased to the level of 142 million £ in the year 2011. Similarly, Trade and other payables have also decreased from the previous level of 6,643 million £ in the year 2010 to the level of 6,178 million £ during the year 2011.
However, Taxation payable have increased from the level of 900 million £ during the year 2010 to the level of 1462 million £ in the year 2011 which shows that the annual turnover of the company has increased and the financial results for the year 2011 have confirmed the same as annual turnover have increased. The operating profit of the company has increased from 4111 million £ during the year 2010 to the level of 4769 million £ in the year 2011 with an increase of 16%.
Similarly, the overall profit for the company has also demonstrated an increase of 25.20% in the year 2011 as compared to that of the year 2010.