• His case study is intended as a self-test exercise on all of ratio analysis. The answers are given as popup boxes to each question. However, do try to work through them all first before submitting to temptation. The more you practise calculating ratios, the easier it gets - we promise! Paul Marriot is the director of Stortford Yachts Ltd. The company has traded for 30 years and has in the past achieved very good levels of growth and return on capital, but this is now changing. In recent time it has failed to introduce new product lines, relying on traditional products and little has been invested in Research or Product Development. You are a business planning consultant for a firm of Management Consultants. Stortford Yachts is one of your clients. In recent times the business has experienced increased turnover but a downturn in overall performance. Paul Marriot has had a meeting with your Director and he has stated that he wants to introduce tighter management control within the company by introducing a system of responsibility accounting. You receive the following memo from your Director, Pauline Changer, regarding this case. Memorandum To: Business Planning Assistant Date: 21st May 2011 From: Pauline Changer, Director Subject: Stortford Yachts Ltd. - accounts information You are aware that I met with Paul Marriot yesterday and that he is concerned with the latest results shown in the final accounts that have recently been prepared at year end. The file attached contains a summary of the company's abbreviated profit statements and balance sheets for the past three years; together with additional information and performance indicators for their business sector as a whole for the period under review. I would like you to examine this information and meet with me on Friday morning to discuss the form and presentation of a detailed financial analysis of the company over the three-year period. Signed: P. Changer Financial information on Stortford Yachts Ltd. 1. Summary profit statements $m $m $m 2009 2010 2011 Sales turnover 4.90 5.30 6.60 Operating costs 4.17 4.43 5.82 Operating profit before tax 0.73 0.87 0.78 Taxation 0.24 0.30 0.27 Profit after tax 0.49 0.57 0.51 Dividends 0.12 0.16 0.16 Retained profit 0.37 0.41 0.35 N.B. The firm's detailed breakdown of costs is as follows: Years 2009 2010 2011 Labour costs 0.93 0.98 1.25 Distribution costs 0.44 0.49 0.61 Administration costs 0.19 0.22 0.27 2. Summary balance sheets $m $m $m 2009 2010 2011 Fixed assets 2.40 2.77 2.88 Current assets Stocks: Raw materials 0.09 0.12 0.15 Finished goods 0.40 0.43 0.45 Debtors 1.14 1.32 1.84 Bank 0.03 0.04 0.05 1.66 1.91 2.49 Less Current liabilities 1.35 1.56 1.90 Net current assets 0.31 0.35 0.59 2.71 3.12 3.47 Capital and reserves 0.5 0.91 1.26 Bank loans 2.21 2.21 2.21 2.71 3.12 3.47 3. Yacht Builders Federation Average ratios for federation members 2011 % Return on capital employed 26.0% Asset turnover 1.79 times Net profit margin 14.5% Current ratio 1.5:1 Acid test ratio 1.03:1 Debtors collection period 83 days Gearing ratio 32.0% Labour cost % of sales 18.1% Operating cost % of sales 85.5% Distribution costs % of sales 9.5% Admin costs % of sales 4.5% S:TripleADesigniconssmallquestion.gif Questions In your role of planning assistant you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the inter-firm comparison table. 1. Calculate all the ratios given in the average ratios for federation members for 2009, 2010 and 2011. 2. Prepare a detailed report on the company's performance in terms of profitability and liquidity compared with the average of the sector over the period. Answers