Industry Average and Ratios Essay

777 Words Aug 27th, 2012 4 Pages
Question 4 K Chapman 2007 | Industry Average | Difference between 2007 and Industry Average | GPR 36.68% | 43% | 6.32% | NPR 20.22% | 39% | 18.78% | ROE 38.65% | 45% | 6.35% |

Tuesday 5th of June 2012
Report to K Chapman regarding gaining a loan to expand the business
The following report has been prepared for K Chapman, to evaluate the financial status of the business. K Chapman is looking to expand within the business. K Chapman has applied to be granted a loan from the Commonwealth Bank. The businesses performance has to meet the industry averages. Ratios and current performance will be evaluated and advice will be given on how this business will be able to improve. A final decision will be made to decide
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This lower percentage is due to the low net profit figure. To improve this ratio, K Chapman would be advised to decrease drawings and also decrease all expenses as they affect the net profit figure. (name the costs of drawings and expenses eg. $17,000) The return on Owner’s Equity is slightly lower than the industry average, meaning that K Chapman will not be eligible to gain the bank loan form the Commonwealth bank regarding the expansion of this business.(how does it affect his business personally)
The ratio that is of least concern is the Gross Profit ratio. The gross profit ratio shows the profits available to cover all the businesses expenses. In this accounting period of 2007, the gross profit ratio of K Chapman is 36.68%. Compared to the industry average of 43%, the gross profit ratio for K Chapman is 6.32% lower than the industry average. This percentage is due to the high amount of the Costs of Goods sold account. To reach the industry average, the Costs of Goods Sold account will have to lower. Therefore the gross profit ratio for K Chapman is lower than the required industry average, meaning that K Chapman is not eligible to receive the bank loan from the Commonwealth bank to be able to expand the business. (same highlighted things as before, good definition though)
Ways to improve current performance: * COGS need to be reduced. This could be done by investigating potential suppliers and

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