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Report for the Eagles Ltd Board of Directors

In: Business and Management

Submitted By eliizina
Words 1745
Pages 7
Introduction
A report for the Eagles Ltd board of directors has been prepared by external consultant. In this report ratio analyses have been used to comment on the performance of the business over two year period (2008 and 2009). Profitability, Liquidity, Efficiency and Gearing ratios have been calculated (See Appendix) and used to reveal and explain the situation in the company.
Firstly the importance of each kind of financial ratios is explained. Then each ratio is analysed according to provided information (income statement and balance sheet). Finally recommendation for further actions for Eagles Ltd is given.
Limitations
• If used incorrectly ratios can be useless and misleading (Elliott, B., and Elliott, J., 2005).
• Ratios can highlight the problems that company has, but they can’t explain the reasons of these problems (Atrilll and McLaney, 2008).
• Not all ratios are useful to all users.
• In this particular case the field in which business operates is unknown.
• The cash flow statement wasn’t available to compare money investments and actions taken each year.
Profitability ratios
Khan and Jain (2007) state that management of the company is interested in operating efficiency and owners expect reasonable returns of their invested funds. Income is crucial for survival and development of any business. (Atrill and McLaney, 2008)
Profitability ratios 2008 2009
ROCE 49.3% 29.3%
Net profit margin 28.7% 19.2%
Gross profit margin 46.3% 41.4%

ROCE (return on capital employed)
This ratio is of particular interest to board of directors and shareholders, because it shows how much profit has been generated by company relative to the amount invested in assets (Khan & Jain, 2007). With reference to Eagles Ltd, this ratio has deteriorated from 49.3% in 2008 to 29.3% in 2009. This means that company for every 100£ invested in company received 29.30£…...

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