Investigating business

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ROCE compares earnings with capital invested in the company. It is similar to Return on Assets (ROA), but takes into account sources of financing. ROCE is used to prove the value the business gains from its assets and liabilities, a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes the same profit. It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities. In 01/02 Whitbread’s ROCE was 5. 6% where as their next year it was 13.

9%. Looking at that there has been 8. 3% increase and that is a massive improvement and the reason could be their massive reduction of their administration costs. It looks as if though they reduced their administration costs for nearly half of what they spend in their previous year. When investors want to invest in Whitbread plc this is one of the important things that they are going to look and it looks really good on Whitbread’s point of view because they have improved immensely in one year and their investors might see it as a potential business. Gross Profit Margin

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold. It is a very simple idea and it tells us how much gross profit per i?? 1 of turnover businesses earn. In 01/02 the Whitbread plc’s gross profit was 23. 1% and their following year it was 24. 6%. Looking at the figures above they haven’t really made that much improvement as they have only increased 1. 5% than their previous year. Therefore, Whitbread plc might to sell their products a higher price or produce more for less money in order for them to boost their gross profit.

Net Profit Margin The profit margin tells you how much profit a company makes for every i?? 1 it generates in revenue. Profit margins vary by industry, but all else being equal, the higher a company’s profit margin compared to its competitors, the better. In 01/02 the net profit was 3. 7% where the year after that 02/03 was 15%. By comparing the two figures above it seems as if they have improved extremely. The difference between those two years is 11. 3% and that was a great achievement on Whitbread’s point of view.

The reason why they have improved so immensely is because they have reduced their administration cost for nearly half of what they spent in their previous year. When the net profit is high it means you are making more profit on every product. Current ratio The current ratio is another test of a company’s financial strength. It calculates how many pounds in assets are likely to be converted to cash within one year in order to pay debts that come due during the same year. You can find the current ratio by dividing the total current assets by the total current liabilities.

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