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Before you start analysing the firm's financial statements, you will need to obtain industry averages for each of the standard financial statement ratios. They are

Before you start analysing the firm's financial statements, you will need to obtain industry averages for each of the standard financial statement ratios. They are provided below.

2019 2020 2021 Industry Averages
Profitability Ratios
Return on equity 21.3% 21.2% 19.6% 22.0%
Return on Capital employed 12.9% 13.5% 13.5% 12.8%
Operating Profit Margin 14.7% 18.2% 23.0% 14.4%
Gross Profit Margin 54.7% 52.0% 49.3% 44.8%
Efficiency Ratios
Average Inventory Turnover period 79.8 83.3 93.0 78.8
Average settlement period for Accounts Receivable 28.0 27.0 28.4 30.0
Average settlement period for Accounts Payable 39.9 48.8 62.4 37.3
Sales Revenue to Capital Employed 87.3% 74.2% 59.0% 87.0%
Liquidity Ratios
Current Ratio 2.82 2.88 2.95 4.60
Acid Test Ratio 2.03 2.14 2.25 2.76
Leverage Ratios
Gearing Ratio 61.7% 58.5% 55.2% 61.4%
Interest Cover Ratio 3.94 4.38 4.65 5.75
Investment Ratios
Dividend Payout Ratio 67.8% 59.9% 57.1% 40.8%
Dividend Yield 6.61% 6.01% 5.08% 4.70%
Earnings Per Share $0.19 $0.21 $0.20 $0.28
P/E Ratio 10.4 9.8 11.5 11.2

1) Analyse the firm's performance over the last 3 years. You should pay attention to all the 16 ratios shown above. Identify any strengths or weakness, in terms of positive or negative trends. a. Profitability Ratios b. Efficiency Ratios c. Liquidity Ratios d. Leverage Ratios e. Investment Ratios 2) Analyse the firm's performance in comparison to Industry averages for each of the ratios. Identify any strengths or weaknesses. a. Profitability Ratios b. Efficiency Ratios c. Liquidity Ratios d. Leverage Ratios e. Investment Ratios

3) Summarise the firm's performance in terms of profitability, efficiency, liquidity, leverage & potential for investment.

4) Briefly explain to the client any possible problems with your analysis that client should bear in mind. For example, are there any conclusions you have come to that might be unreliable because of the nature of this analysis, and if so, why?

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