AeroTech International Plc’s Financial Ratios

Subject: Accounting
Pages: 2
Words: 652
Reading time:
3 min
Study level: Bachelor

Financial ratios

Profitability ratios Gross margin Gross Loss/net sales =(2059)/1362= 1.5117
Operating margin Operating income/ net sales = 306/1362= 0.2247
Profit margin Net profit/net sales = 1923/ 1362 = 1.4119
Return on equity (ROE) Net income/average shareholder equity = 719/39.79 = 18.07
Return on investment Net income /average total assets = 719/6036 = 0.119
Return on assets Net income/ Total assets = 719/ 5413 = 0.1328
Return on Equity Net income/net sales = 719 / 1362 = 0.5279
Return on capital [EBIT(1 – Tax Rate)] /Invested capital = [1923(1-16) / 623 = 0.2058
Return on capital employed EBIT / Capita; Employed = 1923/623 = 3.0866
Market ratios Current ratio Current assets / current liabilities = 3894/ 623= 6.2504
Acid-test ratio [Current assets – (inventories + prepayments)] / current liabilities = [3894 – (150+859)]/623 = 4.6308
Cash ratio Cash and marketable securities / current liabilities = 2885/623 = 4.6308
Operation cash flow ratio Operating cash flow/ total debts = 2050/ 623 = 3.2905
Debt ratios (leveraging ratios) Debt ratio Total liabilities / total assets = 623 /6036 = 0.1032
Debt to equity ratio Long term debt + value of leases / average shareholders’ equity = (0 + 5413)/5413 = 1
Long-term Debt to equity Long term debt / total assets = 0 / 6036 = 0
Market ratios Earnings per share Net earnings / number of shares = 719 /
Payout ratio Dividends/ earnings = 12082/ 719 = 16.8038
Dividend cover Earnings per share / dividend per share = 1923/12082 = 01591

Profitability ratios

These are ratios used to determine the efficiency of the company is using the resources to create profits. For AeroTech International Plc, the gross margin ratio was negative because a loss was registered during the financial year 2010. A gross margin of 1.5 and a profit margin of 1.4 was made during the financial year 2010. This indicates that the sales were few. As such, there is a need to improve sales management so that profits can be made from the operations of the company.

Return on equity was high (18.07), while the return on investment was low (0.119). This indicates that the company is making a few investment programs to promote the growth of the business. On the other hand, the company has acquired enough assets to facilitate business operations. This is indicated by the return on assets of 0.13. Also, the company has improved its equity because the equity ratio is high (0.53). Shareholders get a fair share of the profits made by the company. This is indicated by the return on the capital of 0.21.

Market ratios

The market ratios show that the company has maintained the current assets at a manageable level compared to current liabilities. The current ratio of the company is 6.25, and this shows that the company has minimized the number of current liabilities. On the other hand, the acid-test ratio indicates that the company has increased the number of current assets. The cash ratio indicates the cash and marketable securities have increased to a great extent. Also, the operating cash flow ratio shows that the company has maintained a low number of current liabilities.

Debt ratios

The debt ratio expresses the number of debts that a company has in comparison to the assets owned by the company. A debt ratio of 0.10 is favorable because it indicates that the company can repay all debts, and maintain a high number of current assets. The company has not acquired any long term debts, and this is an indication that there is adequate liquidity.

The company has maintained higher returns to the shareholders by providing high payments for the capital invested. This is indicated by the high payout ratio. Also, the shareholders get a favorable share value. This shows that the company is willing to attract as many investors as possible so that a lot of resources can be available for investment.