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Question:
Describe about the Managerial Finance of Annual Report and Accounts.

 
Answer:
Introduction

ASOS Plc is an international fashion stop for young people, founded in the year 2000 and headquartered in London, England. ASOS is a British beauty and online store that aims to offer more than 80,000 branded and self-brand items with the assistance of web encounters and localized mobile from their respective centers situated in United States, China, United Kingdom, and Europe to near about every place in the world (ASOS, 2015). In relation to the financial year 2015, the company was in an advantageous position in the year because it reported an enhancement of around eighty percent of sales in United Kingdom that includes around twelve percent of enhancement in global sales accompanies with steady profits.

ASOS has adopted various effective steps to meet the satisfaction of its customers and has framed strategies to enhance its technology developments that have further assisted in attaining the major goals of the company (ASOS, 2015). The consumer involvement of the company continues to be effectively high and developing each year. Furthermore, the motive of the company remains firm in becoming the number one fashionable spot for people especially in the twenties (Deegan, 2011).

Computation of 5 Key Ratio
Profitability Ratio

These ratios are a class of economical metrics that are utilized to evaluate the ability of a business to generate revenues or earnings compared to its costs and other associated expenses incurred during a particular period of time.

  • Return on assets

Return on assets is an indicator of how profitable a company is associated to its total assets. It offers an idea as to how effective management is at utilizing its assets to generate earnings. It is computable by dividing the total annual earnings of a company by its total assets and depicted as a percentage. Therefore, higher return on assets ratio signifies better use of assets by a company.

Return on Assets

 

2015

2014

2013

2012

2011

Net Income (I)

36,866

36,950

40,928

9,904

10,849

Assets (II)

4,77,897

3,79,963

3,11,751

2,06,278

1,36,168

Return on Assets (I/II)

0.08

0.10

0.13

0.05

0.08

 

 
Net Profit Margin

This ratio computes the earnings or revenues made by a company as a percentage of the total sales achievable by it. Therefore, higher the distinctions between the revenues and expenses, more is the company’s net profit (Christensen, 2011). Thus, net profit margin ratio is very beneficial in ascertaining the capability of a company to enhance its earnings without enhancing its costs in a similar amount. This ratio is computable by dividing the net income of a company by its total sales during a year. The following depicts the net profit margin of ASOS Plc for the past five years:

Net Profit Margin

 

2015

2014

2013

2012

2011

Net Income (I)

36,866

36,950

40,928

9,904

10,849

Sales Revenue (II)

11,50,788

9,75,470

7,69,396

2,38,023

3,39,691

Net Profit Margin (I/II)

3.20

3.79

5.32

4.16

3.19

Liquidity Ratio

This ratio measures the ability of a company to pay off debt obligations and its margin of safety (MOS) through the computation of metrics accompanying the current ratio, operating cash flow ratio, and quick ratio (Choi & Meek, 2011). Thus, to sustain smooth operations of the company, it has to maintain a proportion betwixt its liquid assets and non-liquid assets.

Current ratio

It is the ratio between current assets and current liabilities of a company. The normal standard of a current ratio is usually two, which implies that the assets of a company must be double of its liabilities so that obligations can be easily paid off. Hence, current ratio going below one is very problematic for a company (Davies & Crawford, 2012) Current ratio is computable by dividing the current assets of a company by its current liabilities.

Current Ratio

 

2015

2014

2013

2012

2011

Current Assets (I)

   3,37,098

   2,60,662

   2,33,132

   1,47,638

      83,809

Current Liabilities (II)

   2,37,298

   1,85,539

   1,51,952

   1,00,291

      66,848

Current Ratio (I/II)

          1.42

          1.40

          1.53

          1.47

          1.25

Efficiency ratio

This ratio typically applies to banks and in general terms, it implies expenses as a percentage of revenue with a few differences. It is utilized to evaluate how well a company utilizes its liabilities and assets internally (Brigham & Ehrhardt, 2011). It can compute the repayment of liabilities, turnover of receivables, basic use of machinery and inventory, etc. It assists an investor to facilitate comparison between two or more companies of similar industry.

  • Earnings per share (EPS)

The EPS of a company is the portion of its profit attributable to each outstanding share of common stock. It is computable by dividing the total earnings of a company by its number of equity shares (Fields, 0qq). The Earnings per share of ASOS Plc during the five-year period are as follows:

Earnings Per Share

 

2015

2014

2013

2012

2011

Total Earnings attributable to owners

36,866

36,950

40,928

9,904

10,849

No of Shares

83,034

83,125

81,751

79,078

74,375

Earnings Per Share

44.40

44.45

50.06

12.52

14.59

Solvency Ratio

This ratio assists in measuring the capability of a company to meet its long-term debts. Besides, the solvency ratio quantifies the company size after tax income, not accommodating non-cash depreciation costs, as contrasted to a company’s net debt obligation (Brealey et. al, 2011). In other words, it assists in evaluating the capital structure of a company.

  • Equity Ratio

This ratio is a kind of financial ratio that assists in the computation of amount of assets financed by equity. It measures the proportion of net assets financed by stakeholders, as opposed to creditors. It is computable by dividing the total assets of a company by its total equity (Brigham & Daves, 2012). Besides, ASOS does not possess any leverage and hence debt is absent. The following portrays the equity ratio of ASOS during the five-year period:

Equity Ratio

 

2015

2014

2013

2012

2011

Total Equity (I)

     2,37,315

     1,93,031

     1,59,799

     1,05,987

        72,120

Total Assets (II)

     4,77,897

     3,79,963

     3,11,751

     2,06,278

     1,36,168

Equity Ratio (I/II)

            0.50

            0.51

            0.51

            0.51

            0.53

 
Price Earnings Ratio (P/E ratio)

In order to compute the Price Earnings ratio of ASOS Plc, it is crucial to consider the share prices of the company and its previous reported earnings. The following depicts the P/E ratio of ASOS based on several sources:

Market price per share (equity) = 4,606 (approximately)

EPS (Earnings per share) = 44.40

P/E ratio is computable by dividing the price per share by its earnings per share. Therefore, the P/E ratio of ASOS reports at 4606 / 44.40 = 103.74

Since the current P/E ratio of the company reports at around 18 times, it is assumable that an investor is more likely to sacrifice a price that is 103.74 times the EPS of the company.

Analysis based on above calculation

Profitability Ratio- It is observable that the company has attained significant growth achievements despite the fact that it has not existed for a prolonged period. Furthermore, its net profit margin ranges from 3%-5% that is a good indicator. The ROTA of ASOC has also been firm and it is noticeable that the company is striving to develop with every surpassing year. Both the net profit margin and ROTA was at maximum in 2013.

Liquidity- The current ratio of ASOS reports around 1.5 every year that is not very beneficial but at the same time, not so dangerous to its liquidity. It is assumable that the company’s liquidity is in a moderate zone.

Efficiency- EPS of the company assists in determining its efficiency. It is observable that EPS has enhanced since the past five years that signifies successful implementation of strategies, thereby facilitating in better earnings of the company.

Investment- The capital structure of the company refers to its investment and it is observable that its capital structure is free from debt. This means that the company operations are conducted through the funds obtained from issue of shares (Albrecht et. al, 2011). Besides, the solvency of ASOS Plc relies on its capital structure. However, the equity ratio of ASOS is also firm during the five years, which signifies adequate maintenance of investment in equity and assets in a same proportion that has facilitated in sustenance of equity ratio to be around 0.50.

ASOS Plc’s movement of share prices during 2014-2015

The below-mentioned graph portrays the movement of share price of ASOS during 2014-2015. It is observable that the company share prices vary from 4,194 GBP to 1,785 GBP in the year. Besides, the decline in share prices was noticeable in the beginning months after which the company made a huge leap and attained its maximum in the month of April 2015 that reported share price at 3000 GBP (ASOS Plc, 2016).

Conclusion

It is observable that the aggregate performance of the company is quite good despite the fact that it has been in operation for only sixteen years and still, it has managed to attain impressive outcomes. Furthermore, the company has played a key role in adequate satisfaction of investors through appropriate implementation of the strategies. This signifies the core strength and fundamentals of the company that has allowed it to gain a competitive advantage in the market. Thus, ASOS Plc is clearly to perform with better outcomes in the upcoming future and the investors can continue investment in the company for obtaining better returns.

 
References

Albrecht, W., Stice, E. & Stice, J 2011, Financial accounting, Mason, OH: Thomson/South-Western.

ASOS 2015, ASOS Annual Report and accounts 2015, viewed 17 August 2016, https://www.asosplc.com/investors/results-reports/2015.aspx

ASOS Plc 2016, ASOS share price information, viewed 17 August 2016, https://www.asosplc.com/investors/shareprice-information/shareprice-chart.aspx

Brealey, R., Myers, S. & Allen, F 2011, Principles of corporate finance, New York: McGraw-Hill/Irwin.

Brigham, E. & Daves, P 2012,  Intermediate Financial Management , USA: Cengage

Brigham, E.F. & Ehrhardt, M.C 2011, Financial Management: Theory and Practice, USA: Cengage Learning.

Choi, R.D. & Meek, G.K 2011, International accounting,  Pearson .

Christensen, J 2011,  ‘Good analytical research’, European Accounting Review, vol. 20, no. 1, pp. 41-51

Davies, T. & Crawford, I 2012, Financial accounting, Harlow, England: Pearson.

Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill.

Fields, E 2011,  The essentials of finance and accounting for nonfinancial managers, New York: American Management Association.

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