Comment on how the Company’s overall performance compares to the average for its industry, pointing out ant significant features, assumptions and limited information used to analyse the company’s performance.
Gross Profit Margin
This ratio represents the difference between sales and cost of goods sold (COGS). The ration is a measure of profitability in buying and selling goods before all other expenses are taken into account (McLaney & Atrill 2008 p231).
Uffington ratio is some 15% lower that the industry average albeit an improvement on 2008, which I feel should be of concern and investigated. It is possible Uffington has had to offer discounts to achieve sales in order to shift inventory and/or its COGS i.e. purchases and direct cost may have increased.
It is interesting to note that Uffington has been able to maintain its net profit margin at 3.3%; therefore reinforcing the need to establish the reasons why it is not achieving the industry average in GP
The current ratio compares the “liquid” assets of the business with the current liability (op.cit.p240) and an indication of whether a company has enough short term assets to cover its short term debt. A ratio of 2x is considered ideal. However, this very much depends on the nature of the business. Also, the ratio can be influenced for example by the level and valuations of inventory held, the quality and control of debtors’ collection and the payment terms for creditors.
The industry average is 2.54x, which is above the ideal ratio, whereas Uffington ratio for 2009 is 0.84c (2008 - 0.86x), which indicate a negative working capital and therefore, it may not be in a position to meet its short-term liabilities. Without the knowing what comprises current liabilities/trade payables, I am unable to say how this low ratio has come about.
Acid Test Ratio
This is similar to the current ratio with the exception it excludes inventory and is much more rigorous...