The accounting reports show that the company, AGA Rangemasters PLC for the years 2009 and 2010. The research focuses on the financial statement ratio of both 2009 and 2010 with emphasis on comparing the financial viability of both accounting periods 2009 and 2010. The research also focused on the discussion of the effects of the income statement on the current and prospective investors of AGA Rangemaster PLC.
The AGA Rangemasters PLC has shown marked improvement over its 2009 financial performance, specifically in terms of profitability financial statement analysis ratios.
Financial statement analysis focuses on the use of ratios. In comparing the financial statements of two companies in the same accounting period, the ratios are compared to determine if one company such as Morrisons, generated a better financial performance compared to the financial performance of one of its major competitors in the United Kingdom Grocery Chain market segment such as Asda.
According to Robinson (2008), there are different ways of analyzing financial statements. One type of financial statement analysis is known as horizontal analysis (it includes the use of trend analysis). Another type is known as vertical analysis (it uses common-size statements). A third type is the use of ratios analysis. This is the type of analysis used in this deep analysis research paper.
Rutherford (2007) emphasized that there are different types of ratio analysis. The leverage ratios involve the use of financial assets and operations. The second type of ratio is the liquidity ratio. The ratio focuses on determining if the company will be able to pay its maturing obligations on time. The liquidity ratio includes the current ratio which is equal to current assets/ current liabilities. The third type of ratio is the profitability ratio. This is the focus of this research paper. The profitability ratios always involve the use of data taken from the income statement and may include data from the balance sheet.
Profitability
Table 1
AGA Rangemasters PLC (Jan – June report)
The above table 1 clearly shows that the company was able to generate revenues of £m 123.4 for the semi -the year 2010 alone. This figure shows that the company was able to sell its products at a price that can pay all its cost of revenues, marketing expenses, and administrative expenses. A higher revenue would show a better picture of the company when compared to the lower revenues of another company or when comparing the revenues of two companies taken from two or more diverse semi-years. This figure is higher than the prior year’s £m 117.8 revenue figure. This clearly shows that the company did better in terms of generating revenues alone (Robinson 2008).
Next, the company was able to generate a profit of £m 0.8 for the semi-year 2010. The 2010 figure is higher than the 2009, prior year, the figure of -£m1.7. The company is able to show that there was enough revenue for the year 2010 to pay for the cost of revenues as well as the marketing expenses and the administrative expense of the same year. On the other hand, the company was not able to show that there was enough revenue for the year 2009 to recuperate the cost of revenues as well as the marketing expenses and the administrative expense of the same year. A higher operating profit shows a better picture of the company when compared to a lower operating profit taken from another year’s financial reports (Rutherford 2007).
In addition, Helfert (2001) states that the company was able to generate a profit before tax of £m 16.4 for the semi-year 2010. This figure is higher than the prior year’, 2009, the semi-annual figure of £m (2.4) In addition, the company’s underlying profit of £m 0.8 for the year 2010 alone. This is higher than the prior semi-year, 2009, of only £m (1.1). For the year 2010, the ratio clearly shows that the company was able to generate more than enough revenues to pay for the company’s cost of revenues, marketing expenses, and selling expenses as well as income tax. On the other hand, for the year 2009, the ratio clearly shows that the company was not able to generate more than enough revenues to pay for the company’s cost of revenues, marketing expenses, and selling expenses (Helfert 2001).
Robinson states (2008) that the company’s Basic Earnings per Share is high at £ 17.6p. On the other hand, the prior semi-year, 2009, shows a dismal financial failure at £ (-1.1). In addition, the company’s dividend per share amount is pegged at £ 0.7p. For the semi-year 2010, the above data clearly shows that the company was able to generate more than enough net profit after taxes to distribute to each of the company’s stockholders or investors. On the other hand, the 2009 data above clearly shows that the company was not able to generate more than enough net profit after taxes to distribute to each of the company’s stockholders or investors.
Computation
Helfert (2001) reiterates that the above-detailed computation shows a good financial picture of the company’s first six months of 2010 which were taken from the website shown in the reference section. The company was able to generate a net profit ratio of 13 percent for the semi–year 2010. On the other hand, the company was not able to generate more than enough revenues to produce a positive net profit margin during 2009. Specifically, the company’s net profit margin is a discouraging negative 2 percent only. This ratio will surely drive the investors away from investing their scarce money resources from the AGA Rangemasters PLC Company. This will persuade many of the current and prospective investors to shy away from AGA Rangemaster PLC.
BRIEFLY, the above financial statement analysis shows that the company, AGA Rangemasters PLC had a profitable year during the first six months of the year 2010. This data will surely entice the current and prospective investors to funnel their money into the AGA Rangemaster On the other hand, the company did not fare well in terms of profitability during the prior year, 2009. The 2009 financial statement ratios will persuade many of the current and prospective investors to shy away from AGA Rangemaster PLC. Indeed, AGA Rangemaster PLC has shown marked improvement over its 2009 financial ratios.
References
No author, (2010) AGA Rangemaster PLC financial statements. Web.
Robinson, R., (2008) International Financial Statement Analysis. London, J. Wiley.
Rutherford, B., (2007) Financial Reporting in the UK. London, Taylor & Francis.
Helfert, E., (2001) Financial Analysis: Tools and techniques: a guide for managers. London, McGraw-Hill.