3] Present a Vertical Analysis of ABC Ltd based on the following figures, also interpret the result.
3] Present a Vertical Analysis of ABC Ltd based on the following figures, also interpret the result.
P&L extract for the year ended 31st March, 2017 | |
Particulars | Amount |
Sales
Less : Cost of Goods Sold Material Wages Factory Overheads |
1500000
70000 50000 10000 |
Gross Profit
Less : Selling & Distribution overheads Administrative Overheads |
1370000
20000 15000 |
Earnings before Interest and Tax
Less: Interest |
1335000
35000 |
Earnings before Tax
Less: Tax |
1300000
50000 |
Net Profit | 1200000 |
Capital Employed | 12000000 |
- Presentation of Vertical Analysis
- Interpretation of the result
Solution : Common-size Statement for the year ended 31st Mar 2017
Particulars | Rs. (000) | % |
Sales | 1500000 | 100 |
Less: Cost of goods sold | ||
Materials | 70000 | 4.76 |
Wages | 50000 | 3.33 |
Factory OHs | 10000 | 0.76 |
Gross profit | 1370000 | 91.3 |
Less: Selling and distribution OHs | 20000 | 1.33 |
Less: Administration OHs | 15000 | 1.00
|
Earning Before Interest and Tax | 1335000 | 89.0 |
Less: Interest | 35000 | 2.33 |
Earning Before Tax | 1300000 | 86.66 |
Less: Tax | 50000 | 3.33 |
Net Profit | 1200000 | 80.0 |
Capital Employed | 12000000 | |
Net Profit as % of Capital Employed | 10.41 |
Analytical insights:
- Wages are 3.33% of the sales. There could be room for process engineering or improving labour efficiency.
- Admin costs account for 1% but selling costs 1.33%. This needs more analysis.
The business generates 10.41% profit on invested capital, which may be inadequate
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