Gross profit salesGross profit for 2013 Essay

Submitted By armaan78612
Words: 1137
Pages: 5

Gross profit sales
Gross profit for 2013 = 11.35%
Gross profit for 2014 = 10.46%
The gross profit has fallen by 0.89% which is not good for Zhang Yang Ltd. The explanation behind this is there selling price may have decreased or running costs may have increased. This is an awful ratio because in comparison to industry averages it was 4.44% lower which was at 10.46%. This could be because of the cost of stock has risen or stock prices are increasing but they haven’t put the sale prices up or they may not be selling as much as before. Also the supplier could be charging more for the stock which is resulting in less profit. I recommend that Zhang Yang Ltd put their prices up as their profit has fallen by a vast margin or they put on some offers which would bring more custom to the company which equals more profit. Also they could find an alternative supplier if their current supplier is charging too much for the stock.
Net profit sales
Net profit for 2013 = 5.35%
Net profit for 2014 = 4.15%
This shows that it decreased in 1.2% which is not good for Zhang Yang Ltd. The explanation behind this is running costs may have decreased because they may have found an alternative supplier and which may have been the cause of the decrease in their running costs. Comparing to the industry average which is 8 % this was lower by 3.85% where it was 4.15%. In abstract the net profit percentage is a major concern for Zhang yang as it shows overheads are increasing. It also shows that the business is struggling and is not as effective in transforming revenue into profit. I recommend Zhang Yang Ltd buy better quality products or products that customers actually want this will increase sales. They should also hire advertising staff to help people recognise who they are and what they sell so they can attract more custom.
Return on capital employed
Return on capital employed in 2013 = 15.65%
Return on capital employed in 2014 = 11.03%
This shows that it decreased in 4.62% which is not good for Zhang Yang Ltd. The reason for this that capital figure has decreased which shows the business has lost its value in which stakeholders may see their return on profit less than before. This is a poor ratio as compared with industry averages which is only 25%. Zhang yang business is 13.97% lower than the average. Having a bad ROCE figure which the business has is less likely to appeal to investors which can affect as the businesses return on capital employed and for current shareholders its valuable because its shows their return in investment has decreased, which also shows creditors if the business can keep up with payments. In addition the recession has hit the business in which it has been impacted yet the banks will offer lower rates therefore the stakeholders would stick with the business. I recommend that Zhang Yang Ltd increase their gross profit & net profit to increase the value of the business. They also need to reduce other expenses which will increase their net profit margin, they could do this by paying their creditors quicker to trim down rise in interest. They could also take out a new loan by doing this they can reduce their current liabilities by paying off their overdrafts.
Working capital
Working capital for 2013 = 1.92:1
Working capital for 2014 = 1.78:1
This has decreased by 0.14. This is not good for Zhang Yang Ltd as their assets have fallen comparing to the company’s benchmark which is 2.12:1. This is still a reasonable figure as debts can be cleared easily & the business can continue to trade. But Zhang Yang Ltd needs to monitor so the figure does not fall any lower. The reason for this could be that they have less stock leftover now and this has decreased the value of the business assets. This also means the business has less cash to pay off their debts. I recommend that Zhang Yang Ltd regularly review the amount they owe to creditors & see if they can get lower interest rates this will help them meet the industry…