Profit Margin Ratio And Profit Ratio Essay

Profit Margin Ratio And Profit Ratio Essay

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Profitability:

According to the income statement, the profit margin ratio decreases as well with 2.5%. However, the sale revenue has a rise in this period actually and it means the company spends more money on operating expense. Therefore this increase on operating expense indicates a worse control of expense. On the positive side, the ROCE of 2014 and 2015 maintains approximately 30%, it exceeds the industry average (25%). The high ROCE can be caused by the high asset turnover. Obviously, the rate of return on capital employed is much higher than the rate at which the company borrows. While there has been a slight decrease (0.44%) from 2014 to 2015 in return on shareholder’s fund. The primary factors of leading this decrease are the declining operating profit and lower financial leverage multiplier. A decline in gross profit margin means the company has reduced its price in services or its costs of management have increased. But the return on capital employed is still high compare with same industry. For investors, they should pay attention on whether the company has some problems in inherent management. Because the company uses more capital to makes less profit in contrast to the performance in previous year.



Efficiency:

There has been a rise with 7.88 days in days trade payable due to a increase of the amount of trade payable from 2023(£m) to 2286(£m). It represents more free source of finance can be used. Actually, a majority of airline companies have a high profit and the shorter period of trade receivable is crucial. It has seen a decline in day’s trade receivable from 36.29 days in 2014 to 34.38 days in 2015. This means that less fund tied up. A favorable finding is day’s trade receivable of Flybe plc having a large ...


... middle of paper ...


...io do not favorably compare with the industry average. In particular in Acid test ratio, it is smaller than 1 in both years, which reflects a potential risk of insolvency if it needed to in a hurry, despite the company has enough time to manage its capital chain through a large gap between days trade payable and days trade receivable. In aspect of dividend per share and earnings per share, the period with increasing dividend per share and decreasing earning per share suggests the company has issued more ordinary share. For investors, there has been a reduction in operating profit by a fluctuation on market value of share, which is relative with dividend yield. A dramatic improvement in dividend payout ratio that is the investors should be interested in. Basic on these analyses above, the investors are supposed to purchase some shares of Flybe plc in a rational price.

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