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Page 1 Trading Company AFS
FINANCIAL ANALYSIS OF THE TRADING COMPANY (PTY) LTD
Holistic over view of operating performance
(Using a traffic light system to quickly highlight performance) 2010 2009
1. RONA - Return on Net Operating Assets 18.4% 21.2%
Net Operating profit (Income Statement) 135 84
Net Operating Assets (Balance Sheet) 735 396
Note: Net Operating Assets - take total net Assets, and add back cash, overdraft balances, tax and dividends.
These are financing factors, and are not part of operations' responsibility
1 a. Profitability 9.0% 7.0%
Net Operating profit (Income Statement) 135 84
Sales 1500 1200
1 b. Asset efficiency (sweat) 2.04 3.03
Sales 1500 1200
Net operating Assets 735 396
Conclusion:
Management has delivered a weaker RONA over the past year, despite improved profitability from operations.
the marginal drop in RONA is a result of the following factors:
While profitability has improved, Asset sweat has declined significantly ( by 32%), and has more than off-set the good work in
managing top - line improvement.
Further analysis now needs to be done, with an eye on those indicators which are driven by the use of assets
Now dive deeper into the company's performance, keeping the big picture in mind.
This allows you to focus on items that drive the above three ratios
2010 2009
2. Profitability
Trading Margin (Gross Profit)
2 a. Gross Margin 28.5% 25.0%
Net Operating profit (Income Statement) 427 300
Sales 1500 1200
2.b Net income after tax (NIAT) 2.5% 3.0%
NIAT 38 36
Sales 1500 1200
2 c. Return on Owners Equity 11.2% 11.3%
NIAT 38 36
Owners Equity 340 320
Conclusion:
Management has improved the trading margin of the company, either by improving price, and or improving the direct
input costs, such as transport costs of the delivery fleet - this could be via improved usage of the assets, better
configuration of the vehicle fleet and better routing of deliveries
However, the NIAT figure has declined - so between margin and after tax income, inefficiencies have crept in , and negated the
good work done by sales and distribution departments
ROE reflects this, as there has been no growth in the return on investment to Shareholders - we need to understand why - remember
the low / declining Asset Sweat in RONA, so we already have an idea - lets check this out now.
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