Ratio Analysis of the Two Companies

Blacks Leisure plc is a high street chain of superstores engaged in outdoor clothing and footwear business all over the United Kingdom having around 104 stores across the country. The company has a diversified customer market and its store design reflect this orientation. It provides clothing and traveling products to a wide range of customers of all ages and kind. It deals in several brands and provides a range of products relating to the outdoor activities and adventure most specifically clothing, tents, outdoor equipment, accessories, and instruments
The comparison and evaluation presented in this report are significant in the sense that it practically employs a wide variety of financial ratios to assess the financial position and performance of both the companies.&nbsp.The ratios are applied to the companies individually and then their outcomes are compared with each other on the basis of interpretation as per the companies’ financial statements. Its significance lies in the fact that the evaluation and comparison will be useful for various users of financial statements that are unable to interpret the information available on a company’s financial statements.
This comparison would assist these users in forming a rationale for their major decision-making i.e., strategic planning, investment and funds lending, etc.
Ratio analysis is the best tool to evaluate a company’s performance and identify problems (Meigs &amp. Meigs, 1993). Riahi-Belkaoui (1998) comments that financial ratios are meant to make the information in financial statements interpretable for the various users of financial statements. Similarly, we will assess and analyze the financial position and performance of the two companies Blacks Leisure plc and Monsoon plc using a broad array of financial ratios from the viewpoints of management, lenders, and investors separately.
Management needs to analyze its performance and efforts put into corporate affairs through the company’s financial results so as to realize their strengths and weaknesses. Riahi-Belkaoui (1998, p11) says, "the profitability ratios portray the ability of the firm to efficiently use the capital committed by stockholders and lenders to generate revenues in excess of expenses". Therefore, the analysis from the management aspect has been done with the help of following profitability ratios:
The Gross Profit Margin Percentage evaluates the percentage of profit earned by a company on sales after the production and distribution activities (Mcmenamin, 1999). It shows how well the company manages its expenses so as to attain maximum profit out of its total sales. Monsoon plc’s gross profit ratio of 61.51% reflects that the company has managed its cost of sales more efficiently than Blacks Leisure plc having a gross profit ratio of 53.07% for the year 2005. It further illuminates that Monsoon plc lost about 38% and Blacks Leisure plc about 46% out of their sales revenue on account of production and distribution expenses. The Net Profit ratio shows what percentage of profit a company earns on its sales (Mcmenamin, 1999). It reveals the profit retained by a company after accounting for its various operating costs. The difference between these companies’ net and gross profit ratios indicate the amount of profit foregone by them in the course of meeting various selling and administrative expenses.