The paper "The Ratio Analysis of Rolls Royce" is a perfect example of a case study on finance and accounting. The report analyzes the financial statement of Rolls Royse for 2014 and 2015 so that the financial performance can be gauged. The report looks at carrying out financial analysis through different ratios which are liquidity ratio, profitability ratios, efficiency ratios, and gearing ratios. The report provides descriptive information regarding the performance and brings forward the core areas which need to be improved so that overall performance can be further improved. Ratio AnalysisAnalyzing the financial statement through ratios provides useful information regarding the financial performance and key areas which the business needs to focus on.
It looks at comparing the past performance of the firm or comparing the financials with other players in the industry so that useful interpretation can be made. The ratio analysis of Rolls Royce based on different ratios for 2014 and 2015 is as underProfitability RatiosProfitability ratios help to gauge the performance of the firm and help to understand the manner in which the different resources of the business were used to generate profits for the shareholders of the company.
The profitability ratios for Rolls Royce for 2014 and 2015 is asDescriptionFormula20152014Net Profit Margin(Net Profit/ sales)*1000.610.42Total Asset Turnover(Net Sales/Average Total Assets)0.610.62Gross Profit Margin(Gross Profit/ Sales)*10023.8023.32Operating Income Margin(Operating Income/Net Sales)*10010.9210.12Sales to Fixed Asset Ratio(Net Sales/Average Fixed Assets)1.351.25Return on Capital Employed(Earnings Before Interest and Tax/ Capital Employed)0.300.22The net profit margin has increased to 0.61% in 2015 from 0.42% in 2014 showing a decrease in expenses and better management of resources. When we look at the same from the point of view of the gross profit margin it is seen that the gross profit margin has increased considerably to 23.8% in 2015 from 23.32% in 2014.
The same is being reflected in the increase in net profit showing efficiency and improvement in performance (Eljelly, 2004). The operating income shows slight improvement showing that the performance of the business has improved and the resources are better used. This ratio also shows that the daily operations have grown resulting in improvement in business.
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