Financial report analysis Essay Example | Topics and Well Written Essays - 2250 words

Financial report analysis - Essay Example The company’s sales have increased by almost 78% from the year 2005 till the year 2009. The company’s sales figures have increased 15.5% on average over the years i.e. from 2005 to 2009 (9%(2006) + 14% (2007) + 18% (2008) + 21% (2009 ? 4). This shows an increasing trend in the sales figure over all the preceding years. The Earnings before Interest, Tax and Amortization (EBITA) have been showing encouraging signs for the shareholders of the company over the five year period. BAE group’s net profit had also been following an increasing trend but the result of 2009 has been of highest worry for its stakeholders, the company reported a loss of ?45 million as compared to a profit of ?1,768 million in the year 2008, this shows a hefty reduction of ?1,813 million which equates to a reduction of approximately 102% in the reported profits of 2009 when compared with that of 2008. This loss has been made as a result of some great changes in the company’s income gener ating assets. The major contribution towards this loss has been attributed to the reduction in foreign exchange gains. This has been because of the weakening of the Dollar currency. BAE systems had to face an incredible strike because of the weakened US Dollar and because of it the gains diminished in the year 2009 as compared to the previous years when those gains were really higher. The second most obvious reason for this loss was because of the reduction in the Interest Income for BAE systems, the interest income within the company has been an influential factor in reducing the effect of the high interest payments and other expenditures. To further understand the financial performance of the company, the ratio analysis technique is used. There are different types of ratios available to ascertain the different operating areas of a company. The Profitability Ratios ascertain the efficient performance of a company. According to the profitability ratios, the returns for the sharehold ers/investors of BAE systems have reduced heavily, the company’s ROCE has reduced from 11.5% in the year 2008 to 7.3% in the year 2009 and the return for the equity shareholders has also reduced drastically. Such a reduction in the Returns for the shareholders would discourage future potential investors to invest in the company but BAE systems have not practically reduced this return offered to its shareholders in fact the company increased its dividend by 10% to 16 pence per share in the year 2009 as compared to 14.5 pence per share in 2008. The Gross Profit and the Net profit margin also reduced in the year 2009 as compared to prior years, the only strengthening feature for the company is its trend to increase its dividend over the last four to five years (the company’s dividend per share had been 10.3 pence per share in 2005). Liquidity ratios are a measure of ascertaining the day to day running of a company; it is merely a measure of ascertaining a company’s ability to pay off its obligations as they fall due. These obligations are generally the current liabilities and these current liabilities can be met by having appropriate current assets. The current ratio is a measure that analyses a company’s ability to pay off its current liabiliti