Ratio analysis illustrates about the precise condition of a company i.e. its size, position ,power, market value, share price, asset value, collection periods, payable periods, stock periods and evaluates the performance and condition of a company in a given period. There are many ratios that can be deduced from the financial statements regarding to a company's performance, activity, financing and liquidity. Some common ratios comprise of the profitable ratio, debt-equity ratio, earnings per share, asset turnover and working capital ratio, but here we will calculate four kinds of ratios:
Profitable ratio: This ratio is inured to assess a business's ability, its power to generate earnings as compared to its expenses, there are basically four kind of ratios from which we can calculate profitable ratio that are:
Gross profit ratio
Net profit ratio
Return on capital employed
Return on shareholder's fund
It can be observed that gross profit of the company was 46% in 2008 but it declined to 43.4% in 2009 which means in 2008, on every pound invested the returns were 46p but suffered a declination in 2009 to merely 43.4p and if we put an account of net profit ratio, it is 6.2% in 2008 but it too lessened to 6.1%. We can see that gross profit of the company dropped 2.6% whereas the net profit dropped negligibly by just 0.1% as compared to previous year only cause of higher investment.
ASOS is investing in warehousing, materials, new technology operational resource, customer care, advertisement and magazines. Because of providing better quality as compared to others, and due to good services, Return on capital employed has also upsurge to 54.9% from 45.9% .This significant jump of 9% denotes increase in companies' assets. Now saga of the shareholder's fund is same as above as it has increased in same ratio as above, to 54.9% from 45.9% which means that company is completely profitable and earning more gold for its shareholders
Liquidity ratios: This ratio is to determine a company's capability to pay off its short-terms debts obligations. Generally, the higher goes the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. For that, two ratios have to be considered for:
Current ratio
Quick ratio
Firms current ratio for 2008 is 1.4:1 depicts firm has 1.4 times worth of current assets to pay the liability but this figure fell off to 1.3:1 in 2009 which signifies firm's power to pay the short term liabilities is normal, its assets are not growing as more attention is taken into consideration on investment and overseas expansion, and the same effect is observed in quick ratio which was 0.8:1 in 2008 and declined to 0.5:1 in 2009. Quick ratio is basically current assets excluding inventories to current liabilities. Deriving a conclusion from this point, it can be inferred that company's liquidity state is not that good but company has enough funds to overcome its liabilities and to bear the expense of ongoing operations.
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Efficiency ratio: This ratio quantifies the quality of a business' receivables and how efficiently it uses and regulates its assets, how effectively the firm is paying its debts. Efficiency ratios, also known as asset management ratios, are the key to deciphering how well a business manages and uses its assets. It can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. These ratios measure a company's efficiency in applying its assets and play a role in determining the returns generated. Asset turnover, debtors' turnover and inventory turnover are among the key efficiency ratios.
Average stock turnover period (age of inventory)
Average age of receivables (average collection period)
Average age of payables (average age of payment)
Inventory turnover period of the company for the last economy year has increased from 98 days to 109 days whereas earlier it took 98 days to finish the stocks. Reason behind this upsurge can be accounted to higher stock orders and increasing sales.
Consequently, age of receivable has also reduced to 8 days from 22 days which means the amount which resulted for credit sale is now collected within 8 days which suggests that company has its capital back to its account making it more powerful than of early days.
The age of payables has also reduced to 133 days from 156 days proposing that material or row materials which are being purchased on Credit Company need to settle their amount in 133 days. It clearly symbolizes that there is perfect balance between the age of receivables and payable which is a healthy ambience for the smooth functioning of the company as age of receivables and payables both are on decline in the favor of company's growth.
Investment ratio: It is the ratio used in calculating the no and amount of funds investors contributed to a company. It usually helps to measure investment worthiness of the company .In this aspect this firm is really like a gold mine, the shareholders are eager to buy the shares of this company as it is rapidly growing in market, according to the annual report of ASOS, it is 2nd player in the u.k online fashion .These ratios are of great interest to investment analyst. The ratio used is:
Earnings per share (EPS)
Earnings per share (EPS) does not actually depicts completely but if you compare it to EPS of previous year it indicates the rate of growth of companies earnings are growing. Here EPS is 13.6p in 2009 and 6.9 pounds in 2007 which demonstrates the fact that companies earnings have increased over a year .it can be concluded company is trying to protect the investors' interest and this feat is a performance by some mature and already established companies. Of course, Asos is generating profitable growth by investing in operational resources.
We all studied about the ratios of company, and all in one we came to know that ASOS is rapidly growing, n shinning like a moon between lots of stars in the sky .its shares are completely going high, the rate of visitors visiting the site has been increased to 5.2 million per month, and that is quite high in today's market condition, the active customer rate is also increasing day by day, ASOS is providing over 30 brands , customers has around 30000 options to shop anything from here. It has around 24000 lines, from where customer can purchase material, overall we can conclude company is going up and it is continuously defeating its entire competitor in race. so it's a good place to invest in, as we noticed here, EPS is growing, profitable ratio is also increasing, even age of collection period n payment period is decreased, so all this give a solid reason to invest in company
