Produced By: Rubinder Takhar

Financial Ratios for C LTD

Solvency
If a business is solvent then it means that you are able to pay for your cash outflows. To see if C LTD is
solvent or not I have to look at my cash flow forecast.

As can be seen from my cash flow C LTD is solvent from June-December the owner can pay for the cash
outflows of the business. However after December the business is not solvent so they cannot longer pay
for the businesses cash outflows.

Profitability
Gross Profit (%) 86.20%
I calculated this by taking the cost of C LTD sales which 3303.40 by the turnover which is 23,900
which meant that my overall gross profit was 20,596.60. Then to work out the gross profit margin I
divided the overall gross profit by the revenue made in the first year and then times that by 100 to
make it a percentage.
This is a good result as it means that 86p in every 1 is kept as Gross profit. This helps ensure that
C LTD have enough cash to cover the expenses of the business as gross profit does not include the
costs of the business.
Net Profit (%) 45.10%
I calculated this by dividing the cost from the first year which is 31,363.62 by the revenue generated
in the first year which is 23,900. Then to calculate it as a percentage I multiplied it by 100 which
made it 45.10. This shows that I will be making an overall loss of -45.10%.
When I account for my expenses, this ratio shows that my business will be making a loss. It loses
45p for every 1 of sales made. This shows that in my first year I will not be able to complete my
main aim of breaking even in the first year as I will be making a loss.

Return on capital -358.900667%

employed (ROCE)
I calculated this by dividing by net profit by -10,767.02 by the amount that has been invested into
(%)
the business which is 3000. Then I multiplied this by 100 to see it as a business.
The result of this return on capital employed ratio shows that C LTD will be losing 358.900667% of
what has been invested into the business. This is extremely low and means that C LTD will be losing
a lot of the capital that has been invested into the business. This not only mean that C LTD will be
losing a lot of the money that has been invested into the business but it also means that the bank
and the owners parents will be losing a lot of the money that they have invested into the business.
The negative ROCE will mean that a bank will probably not want to invest in my business and it
would be more beneficial for them to invest in another business which is predicted to have a better
ROCE ratio then I am. As for the owners parents they will still probably invest in my business but for

them it will probably be better to invest the money into their own business or to probably put the
money into a current account. According to moneysupermarket.com the best interest rate on a
current account is in a nationwide bank account as they have an interest rate of 5%.1 This mean that
is my parents chose to invest the 500 that they investing into my business into a nationwide bank
account then they will be making an additional 25 on their 500 meaning over 12 months they will
have a total of 525. After the 12 months the interest rates on this current account reduces to 1%.
Efficiency
Stock Turnover
31.84
The result of C LTD stock turnover calculation is that I will be turning over my stock 31.84 times a year
this means that I will be turning over stock every 11 days. This is a good result as even though for
my business the product does not go off quickly it is good that C LTD will be turning over my stock
regularly as it will mean that the Mithai is fresh.
Gearing 66.66%
I calculated the gearing ratio for my business my dividing the amount of money that I would be getting
from a bank loan by the total money that will be invested into the business and then multiplied the
result by 100 to make it a percentage.
The gearing ratio for C LTD is 66.66% meaning that 66.66% of C LTD is funded from loans. This is a
high figure but it is not that high that it would mean that it would stop people from investing into the
business. However this does mean that I will need to consider investing more into my business as a
way to make it more probable that offer people and organizations will invest in C LTD.

Money Super Market .com 15/12/2015

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