Financial Management - Ratios comparision Essay

Financial Management - Ratios comparision - Essay Example This ratio indicates the financial structure of the enterprise. In other words the ratio is a barometer to reveal how the assets of the enterprise have been financed. Total Owings (Debts) include long-term debts and current liabilities, whereas Total Assets consists of both fixed and current assets. The ratio measures the total assets financed by outside debts. In 2006 47.54% of total assets of Bloodstone Ltd. Were financed through total owings, both long term as well current liabilities; where as in 2007 dependency on owings for assets financing has marginally gone up to 48.38%. The situation of Blooodstone Ltd.is little better than Garnet Plc., half of whose assets are financed through owings The ratio measures the incremental sales over previous year sales. The formula is to divide the absolute increased value of sales by total sales of the previous year and express the increment as percentage over previous year’s sales. Blood Stone Ltd. has attained a 15% growth in sales in the year 2006 over the sales of 2005. On the other hand such growth is only 8% for Garnet Plc. Even assuming both the companies in the same industry there may be a variety of reasons for such increased growth for Blood Stone Ltd., like: a) Increased value of fixed assets in the year 2006 as compared to 2005 suggests the new fixed assets have been manage effectively in the contribution of growth in sales. There may have been increase in sale outlets and in areas where there is no or negligible competition. b) Debtors have gone down to â‚ ¤1050 in 2006 as compared to â‚ ¤1,100 in 2005. This implies that the emphasis was on cash sales either by reducing the sales prices per unit or by providing cash discounts. There is also a possibility that certain incentive plans might have been introduced or there was better credit control. Bloodstone Ltd.’s PBIT ratio has remained more or less constant during 2005 and 2006. In 2006 it was 4.67% as compared to 4.5% in 2005.