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P5 Interpreting The Table Below Comparing The Industry Profit

1647 words - 7 pages

In this part of the assignment I will be interpreting the table below comparing the industry profit.
| Mainwaring Engineering year ending march 2011 | Mainwaring Engineering year ending march 2012 | Industry averages of year march 2012 |
Return on capital employed | 7.8% | 8% | 8% |
Gross profit percentage | 48% | 44% | 40% |
Net profit percentage | 76% | 4% | 75% |
Stock turnover | 92 days | 4 days | 90 days |
Debtor collection period | 58 days | 60 days | 55 days |
Current ratio | 2.6:1 | 2.4:1 | 2.5:1 |
Acid test | 1.5:1 | 1.3:1 | 1.4:1 |

Return on capital employed (ROCE)
To be able to work out the return on capital employed I had to calculate the net profit ...view middle of the document...

Gross profitTurnover×100
Mainwaring engineering year ending March 2012 the Net profit percentage is 44%
7171628×100
The Industry averages of year march 2012 target was to achieve 40% and company ended up achieving a higher percentage which was 44%.
So the gross profit in the ending of March 2011 was 48% and the Industry averages of year march 2012 was 40% and the company achieved 44% in the ending of March 2012 which means they did not make an improvement from the previous year but still was able to achieve the average target.
Gross profit is very important for Mainwaring Engineering. It should be enough to cover all expenses such as utilities and provide for profit. Normally when a company has a higher percentage would be considered to be better.
The percentage can be used to test Mainwaring Engineering condition by comparing it with the past year percentage in 2011 which was 48% which is considered to be better than the percentage the company made in 2012 which was 44% and with the ratio of other companies in the industry. If a gross profit percentage grows over the past years is the sign of good improvement.
This is an advantage for Mainwaring engineering as it Increases verifiability and it will verify the value of inventory held by the company.
Net profit percentage
The net profit percentage of the Mainwaring Engineering year ending March 2011 is 76% and to work this out the calculation would be the following:
Net profitTurn over×100
But the net profit percentage of the Mainwaring Engineering year ending March 2012 is 4% and the calculation for the net profit percentage is:
691628×100
Net profit percentage is a very useful tool as Mainwaring Engineering can measure the overall profitability of the business. To see whether Mainwaring Engineering is constantly improving its profitability or not, the analyst should compare the percentage with the previous years, the industry’s average and the budgeted net profit percentage.
This is an advantage for Mainwaring Engineering as it helps in ascertaining how profitably the assets have been used during the period.
But there was a major difference between the end of March 2011 result which was 76% compared to the end of March 2012 result which was 4% and this is a huge disadvantage for the company as the average target for them to achieve was 75% and the 4% is very poorly for the companies result. The result to this was due to stock as they did not have enough stock to sell to be able to achieve the net profit.
Stock turnover
The stock turnover of the Mainwaring Engineering year ending March 2011 92days and to work out this calculation would be the following:
Cost of goods soldaverage inventory
This could either be expressed by days or percentage but in this case we are expressing the results in days. The stock turnover of the Mainwaring Engineering year ending March 2012 is 4 days and the calculation is:
911237
Stock turnover is very important in a company's...

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