Submitted By woowoo11
D2 - Evaluation of Ratios
Probability Ratios such as Gross profit in 2007, was 32%, which means that for every £1 of sales revenue, only 0.32 remains after all direct expenses have been deducted.This ratio compares gross profits to the sales revenue. It tells us how much of the sales revenue earned actually consists of gross profits - and therefore, how much consist of costs of goods sold. A fall in this ratio means that for every £1 of sales generated by the firm, less profit will be earned. This money then contributes towards covering the other expenses of the business. Therefore, for Harvey and Co's business, they have a very poor gross profit in the year 2007, because they are only generating 0.32 in gross profit, which would contribute nothing towards the business, even after all direct expenses have been deducted. However their gross profit margin increases in 2008 by 7%, which means that they are generating more gross profit, which allows the business to have more profit for covering the remaining expenses. The business itself gets better each year, as in 2009, it again rises to 40%, showing a great improvement over the 3 years. This is good for the business, because it shows that they now understand where they have gone wrong and it has been improved. The information can be used by investors, so that they can see if the company is worth investing in and they can also use the information to work out whether the company is improving or getting sufficiently worse over a three year period. This would be done by any investor that is looking to invest in a business or company such as Harvey and Co, so that they can generally analyse every aspect of the business before they look at investing. The business at the start wasn't doing very well with their gross profit, which could of let the business down if they had continued to let their gross profit margin…...