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Financial Analysis: Dyson Electrical Spares Ltd.

2160 Words9 Pages

Introduction: How business accounts can be interpreted and better understood Analysis helps us understand how efficient a business is, its overall health and where it stands compared to competitors. There are four techniques that can be used to analyse, interpret and understand business accounts. One technique is vertical analysis. Catherine Gowthorpe (2011) explains that it involves expressing each figure in the income statement or statement of financial position as a percentage of either sales or net assets. It is used to identify if any expense (e.g. costs of goods sold) is too high when compared to sales. Horizontal analysis compares account balances and ratios over time periods, such as a company’s sales in 2012 to its sales in 2013. Dyson …show more content…

An increasing fixed assets turnover ratio shows they are making efficient use of their fixed assets each year. These assets are property and equipment and are used in the process of production, supply of goods or administrative purposes. Electrical Spares Ltd’s gross profit margin trend has also increased over the three years. This could be due to their efficient use of fixed assets, improvement in sales efficiency or due to renegotiation with suppliers to get better rates or buying inventory when discounts are available. The company’s mark up has increased 4.7% from 2012 to 2014. The low mark up percentage in 2012 may have been to stimulate extra sales activity. The mark up may be high in 2014 because as Weetman (2010) suggests, if Electrical Spares Ltd is a market leader, they can command higher prices because of their reputation. Efficient use of fixed assets may have increased production or supply of goods, therefore more demand and higher mark up. On the basis of Electrical Spares Ltd’s net profit margin, business performance seems to have improved but only slightly. The drop in net profit in 2014 could relate to the mark up increase in that year. It is possible that customers and competitors thought they were charging too

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