Financial analysis is the process or critically examining in detail, accounting information given in financial statements and reports. It is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of a firm’s performance. The measurement and interpretation of business performance is done through the use of ratios. The financial statements published by companies are too general to be used by the various stakeholders and hence ratios are used to highlight the different aspects of business operations. Therefore, I here by undertake to take a critical analysis of this data, and with your permission, I shall give a detailed analysis on the aspect pertaining HMV Group Plc’s financial position to enhance management to come up with a concrete and viable decision. Financial ratios are used to evaluating the ability of the firm to meet its short term financial obligation as and when they fall due. Also, it helps to interpret the performance of the firm over the period covered by the financial statements and for comparison of performance of the firm. This can be done in the following ways; first, cross sectional analysis of the performance of the firm in question is compared with that of individual competitive firms in the same industry. On the other hand Trend/time series analysis of the firm’s performance is evaluated over time. These analyses are also used for predicting future performance of the firm during a specified time flame in which the business was in operation. Further, to establish the efficiency of assets utilization to generate sales revenue during the year. Finally, to establish the extent which the assets of the firm has been financed by fixed charge capital.
Profitability ratios evaluate the firm’s earnings with respect to a given level of sales, a certain level of assets, the owner’s investment, or share value. Evaluating the future profitability potential of the firm is crucial since in the long run, the firm has to operate profitably in order to survive. The ratios are of importance to long term creditors, shareholders, suppliers, employee’s and their representative groups.
From the Appendix 1, we can see, From 2009 to 2012 the return on capital employed gradually reduced from 43.45% to -25.82%. Only 2011 of the ROCE were 9.61% belonged to the average return. In 2009 and 2010 the ROCE belonged to high return (over11 %), shareholders would earn residual income, value-added. 2012 belonged to low return (under 6%), shareholders would have value loss. Tells us how much profit we earn from the investments the shareholders have made in their company.
With regard to return on assets, From 2009 to 2012, indicators gradually decreased from 11.13% to -5.86%. Showed that the enterprise asset utilization effect worse and worse, the enterprise did not got a good performance on revenue increasing and money saving.
The next is Asset Turnover. From 2009 to 2011, the Asset Turnover gradually reduced from 3.17 to 2.17.This showed that the enterprise's total assets turnover speed was getting slower, sales ability was more and more low, asset utilization efficiency was more and more low. the Asset Turnover Suddenly rose to 3.41 in 2012, that indicates the the utilization efficiency of each asset was improved by the company, hence the sale’s revenue was also increased.
The company's sales margin from 2009 to 2012 is gradually reduced, indicating that the profitability of the enterprise itself gradually reduced. This may be due to higher corporate expenses due to cost. 2009 and 2010 net sales Average Benchmark is still within the scope of CIMA, which shows the first two years of the time, though reduced, but the company's profitability is still relatively good.
Gross profit margin (gross profit margin): After the company's gross margin from 2009 to 2010, a growing trend, but from 2010 to 2012 show a downward trend, indicating a slight