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This essay delves into the financial performance of MySales Group PLC over a four-year period, from 2016 to 2019, focusing on various financial ratios that offer insights into the company's profitability, operational efficiency, liquidity, capital structure, and investor returns. Through a detailed analysis of ratios such as gross profit margin, operating profit margin, inventories turnover, trade payables payment period, current and acid test ratios, gearing ratio, interest cover ratio, and earnings per share, we aim to provide a holistic understanding of MySales Group's financial health and offer recommendations for future improvements.
Gross profit margin ratio is the percentage of gross profit to sales revenue or operating income, the gross profit margin ratio correlates sales with its directly attributable purchase and processing costs, and gross profit margin ratio also provides an indication of rising sales prices.
Therefore, gross profit margin ratio is a measure of the profitability of buying or selling services or goods before considering any other costs (Atrill and McLaney, 2011).
This ratio measures the speed at which inventory is sold or used in a given period.
| Year | Inventories | Cost of Goods Sold | Inventories Turnover Period Ratio (Days) |
|---|---|---|---|
| 2019 | 15,963 | 18,941,000 | 0.31 |
| 2018 | 33,650 | 275,000 | 44.66 |
| 2017 | 38,042 | 281,000 | 49.41 |
| 2016 | 35,473 | 798,000 | 16.41 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
As shown in the table above, the gross profit margin ratio of MySales Group has increased relatively from 2016 to 2018, but the gross profit margin ratio has dropped significantly in 2019. And from 2016 to 2018, the revenue of MySales Group increased every year, but in 2019, it experienced a huge decline, to its lowest point in nearly four years.
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Although there has been a huge decline in gross profit margin ratio, this does not indicate a problem with MySales Group and should be analyzed in conjunction with other data.
Operating profit margin ratio is calculated after considering all the costs of operating, but before financing and tax services costs; represents transaction profit before considering interest charges payable (Williams and Dobelman, 2017).
| Year | Trade Creditors | Credit Purchases | Trade Payables Payment Period Ratio (Days) |
|---|---|---|---|
| 2019 | 426 | 9,985 | 15.57 |
| 2018 | 1,023 | 30,138 | 12.39 |
| 2017 | 1,042 | 16,951 | 22.44 |
| 2016 | 385 | 9,058 | 15.51 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
As can be seen from the table above, although the revenue in 2018 was the highest in the past four years, the operating profit margin ratio for this year was the lowest, and the operating profit margin ratio for 2019 was the highest. From 2016 to 2017, revenue has steadily increased, and operating profit margin ratios have also increased.
The fluctuation in the trade payables payment period ratio indicates changes in MySales Group's credit management strategy and its relationship with suppliers.
Liquidity ratios, including the current ratio and acid test ratio, measure a company's ability to meet short-term obligations.
| Year | Current Assets ($ million) | Current Liabilities ($ million) | Current Ratio |
|---|---|---|---|
| 2019 | 31,528,000 | 66,244,000 | 0.48:1 |
| 2018 | 75,078,000 | 56,417,000 | 1.33:1 |
| 2017 | 78,969,000 | 52,086,000 | 1.52:1 |
| 2016 | 86,509,000 | 52,015,000 | 1.66:1 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
From the table above, people can see that from 2016 to 2018, the current ratio of MySales Group was above 1 in the three years, but the current ratio has dropped below 1 in 2019.
The acid test ratio is a measure of the ability of an enterprise or company to fulfill short-term debt with the most liquid assets. If the acid test ratio of an enterprise or company is higher, that means the better the liquidity of the enterprise or company (Atrill and McLaney, 2011).
| Year | Quick Assets ($ million) | Current Liabilities ($ million) | Acid Test Ratio |
|---|---|---|---|
| 2019 | 15,565,000 | 66,244,000 | 0.24:1 |
| 2018 | 41,428,000 | 56,417,000 | 0.73:1 |
| 2017 | 40,927,000 | 52,086,000 | 0.79:1 |
| 2016 | 31,036,000 | 52,015,000 | 0.98:1 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
As can be seen from the above table, during the four years from 2016 to 2019, the acid test ratio of MySales Group has kept falling, especially in 2019. But for now, MySales Group is still unable to fully repay its current debt, but it still needs to be combined with the future prospects of MySales Group to determine.
The gearing ratio measures the long-term lender's contribution to the enterprise or company's long-term capital structure, and it is also used to measure the ability of creditors to provide funds for operating activities (Atrill and McLaney, 2011).
| Year | Long-Term Debt ($ million) | Capital Employed ($ million) | Gearing Ratio |
|---|---|---|---|
| 2019 | 231 | 4,319 | 0.05 |
| 2018 | 326 | 73,886 | 0.004 |
| 2017 | 475 | 75,710 | 0.006 |
| 2016 | 368 | 76,780 | 0.005 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
From the above data, it can be seen that MySales Group's gearing ratio is very low, and it has basically remained at about 0.005 from 2016 to 2018, and only slightly increased in 2019.
The interest cover ratio indicates the enterprise or company's ability to repay interest; if the interest cover ratio is higher, it means the greater ability to buffer is greater impact of all sales on profits (Atrill and McLaney, 2011).
| Year | Operating Profit Before Interest ($ million) | Interest Charges ($ million) | Interest Cover Ratio |
|---|---|---|---|
| 2019 | 26.3 | 0.5 | 52.6 |
| 2018 | 2.9 | 0.3 | 9.67 |
| 2017 | 1.5 | 0.1 | 15 |
| 2016 | 0.2 | 0 | - |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
From the data in the table, it can be seen that the interest cover ratio of MySales Group has increased significantly, which also shows that MySales Group has the ability to repay its debt in the long term.
Earnings per share (EPS) ratio refer to the ratio of the net profit of an enterprise or company to the common stock. This ratio can reflect the profit level of common stock (Weetman, 2016).
| Year | Net Profit ($ million) | Number of Ordinary Shares | EPS Ratio |
|---|---|---|---|
| 2019 | 26,332 | 154,331,652 | 0.17 |
| 2018 | 2,893 | 154,331,652 | 0.02 |
| 2017 | 1,558 | 154,331,652 | 0.01 |
| 2016 | 167 | 154,331,652 | 0.001 |
(Data Source: MySales Group PLC, Annual Report 2019 & 2017)
It can be seen from the table that from 2016 to 2019, the earnings per share (EPS) ratio of MySales Group are increasing year by year, which is a good signal for any enterprise or company.
MySales Group PLC's financial analysis reveals a mixed picture. While profitability and operational efficiency have shown improvements, liquidity challenges and declining revenue in 2019 raise concerns. The company's low gearing ratio and improved interest cover ratio suggest financial stability and solvency, but liquidity ratios below industry benchmarks indicate potential short-term financial stress. To address these challenges, MySales Group should focus on enhancing revenue streams, improving cost management, and bolstering liquidity to ensure long-term sustainability and growth.
Analyzing MySales Group PLC's Financial Health. (2024, Feb 17). Retrieved from https://studymoose.com/document/analyzing-mysales-group-plc-s-financial-health-a-2016-2019-overview
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