Business Performance Analysis

Profitability Analysis

The profitability ratios indicate the ability of the company to generate profits. Absolute accounting profit might be irrelevant at times as it must be related to the amount of capital invested in the company or the size of the entity. In order to assess the profitability of Bertie, Return on Capital Employed (ROCE), Gross Margin, and Net Margin have been used. ROCE measures the profit that has been earned relative to the total financing of the entity. The ROCE for Bertie plc was 14.81% in 2014 and decreased to 7.06% in 2015. This decrease has been attributed to the decrease in the company’s profit before interest and taxes as well as the increase in the company’s long-term borrowings and share capital. This indicates that the company has been generating nearly half the returns on its capital employed in 2015 as compared to that in 2014.

Moreover, the gross margin has decreased from 8.44% in 2014 to 6.13% in 2015. The gross margin indicates the profitability of the company in relation to the number of sales it made. Despite the increase in the company’s sales, there was a decrease in the company’s gross profits in the year 2015. This was mainly due to the increase in the prices of various items which the company decided not to transfer to the consumers and thereby the company experienced a decrease in its gross profit margins. Likewise, the net margin of the company fell from 6.75% in 2014 to 4.08% in 2015. The net margin compares the net profit of the entity with its sales. The decrease in the net margin indicates that the company has been generating lesser net profits in 2015 despite the increase in sales. This could be attributed to the escalating expenses resulting in lesser net margins for the company. Overall, the three measures of profitability used here indicate that the profitability of Bertie Plc has decreased in 2015 as compared to 2014.

 Efficiency

Efficiency ratios measure the degree to which a company manages its resources. One measure of a company’s efficiency is the inventory days. This indicates the time period taken by the company to turn its inventory into sales. The inventory days for Bertie Plc have decreased from 22.44 in 2014 to 17.4 in 2015. This indicates that the company has been more efficiently selling its inventory and taking lesser days for selling them. Another ratio that measures the company’s operational efficiency is the payable payments period. It measures the time taken to make payments to the company’s creditor. The payable payments period for Bertie Plc has increased from 77.75 in 2014 to 78.2 in 2015. This indicates that the company is slightly experiencing more difficulties in terms of making payments to its creditors.