MJ PLC
MJ PLC
MJ PLC
This expresses the relationship of gross profit to net sale (cash and credit) in percentage; this is
used to know the profitability of the business. Higher gross profit margin shows good
management. The objective is to determine the efficiency with which production and selling
It can be noted that the gross profit margin of MJ PLC showed an increasing trend during the
period of study because during 2019 the gross profit margin was 28.9% which kept the increase
to 30% in 2020. The average of the gross profit margin was 29.44% which can be regarded as
Operating Profit
This establishes the relation between operating profit and net sale. The main objective of
Interpretation
It can be noted that the operating profit of MJ PLC showed a little increase trend during the
period of study, because during 2019 the operating profit ratio was 12.22% which kept the
increase to 12.8% in 2020. The average of operating profit ratio was 12.51% which can be
regarded as good and denoted efficient management and increasing trend should be maintained.
Current Ratio
This is the liquidity ratio that measures a company ability to pay short term obligation or those
Interpretation
it can be denoted that the current ratio of MJ PLC showed that in 2019 the company could paid
2.25:1 of the short term liability and in 2020 the company paid 2:1 of the short term liability
which indicate the company, the lower the current ratio the less capable the company is of
paying its obligation because it has a larger proportion of short term asset value relative to the
The Acid-Test Ratio, also known as the quick ratio, is a liquidity ratio that measures how
sufficient a company’s short-term assets are to cover its current liabilities. In other words,
the acid-test ratio is a measure of how well a company can satisfy its short-term (current)
financial obligations.
Interpretation
The higher the ratio, the better the company’s liquidity and overall financial health, the ratio in
2019 of 1.36:1 implies that the company owns £1.36 of liquid assets to cover each £1 of current
liabilities and in 2020 of 1.14: implies that the company owns £1.14 of liquid assets to cover
each £1 of current liabilities. However, it’s important to note that an extremely high quick ratio
(for example, a ratio of 10) is not considered favorable, as it may indicate that the company has
excess cash that is not being wisely put to use growing its business. A very high ratio may also
indicate that the company’s accounts receivables are excessively high – and that may indicate
collection problems.
This measures the average number of days that credit customers usually make the payment to the
company. The short period of days identified the good performance of collection or credit
assessment, and the long period of days represents the long outstanding.
Settlement Period for Trade Receivable = Trade Receivable ×365days
Credit Sales 1
Interpretation
Based on the calculation above, we noted that the company took average 26.5 days to collect
cash from its customers for credit sales in 2019 while in 2020 the company took average 43.8
days to collect cash from its customers for credit sales. This means the company is taking more
The collection period of credit sales is one of the most important keys performance indicators
that closely and strictly monitor the board of directors, CEO and especially CFO.
This is because of failing in the collection of credit sale or convert the credits sales into cash in a
short period of time will adversely affect the company at least two thinks.
First, long outstanding accounts receivable could potentially lead to bad debt and the effect is
adverse than the risk of late collection. This is because the company could not even get the cash
from sales of its goods or services but lose them as expenses. This will subsequently lead to poor
financial performance.
Second, the company needs cash not only to pay to suppliers for the services or products that it
purchases for running its operations but also to pay for its employees. Long collection days of
credit sales will lead to insufficient cash to pay for these things.
This measure the average numbers of days that company usually make the credit payment to the
supplier. The short period of days identified the good performance of collection or credit
assessment, and the long period of days represents the long outstanding.
Based on the calculation above, we noted that the company took average 21.7 days to payback
cash to its supplier for credit purchase in 2019 while in 2020 the company took average 36.5
days to payback cash to its supplier for credit purchase. This means the company is taking more
Inventory turnover, or the inventory turnover ratio, is the number of times a business sells and
replaces its stock of goods during a given period. It considers the cost of goods sold, relative to
Interpretation
This denote that the inventory turnover period of MJ PLC in 2019 was rated at 6.4 times and in
2020 was rated at 5.83times, which means a lower turnover rate indicates weak sales and excess
This ratio establishes the relationship between profit and capital employed and is calculated in
percentage by dividing the net profit by capital employed. It is also a measure of earning power
Interpretation
It can be noted that the return on capital employed ratio of MJ PLC showed an increasing trend
throughout the period under study. In 2019 the ratio was 19.23% which increased to 22.22% in
2020 which shows efficiency of the management and signifies that the management of the
company made an optimum utilization of the capital funds. Such a situation can be regarded
satisfactory. The average of the ratio was 20.73% which is satisfactory and should be managed
properly.
The Interest Coverage Ratio (ICR) is a financial ratio that is used to determine how well a
company can pay the interest on its outstanding debts. The ICR is commonly used by lenders,
creditors, and investors to determine the riskiness of lending capital to a company. The interest
Interpretation
It can be noted that in 2019 interest payments was 6 times with its operating profit and in
2020 interest payment was 3.33 times with its operating profit.
Gearing
Gearing is the amount of debt proportion to equity capital that a company uses to fund its
operations. A company that possesses a high gearing ratio shows a high debt to equity ratio,
Gearing serves as a measure of the extent to which a company funds its operations using
money borrowed from lenders versus money sourced from shareholders. An appropriate level of
gearing depends on the industry that a company operates in. Therefore, it’s important to look at a
It can be noted that the gearing of MJ PLC showed a decreasing trend throughout the
period under study. In 2019 the ratio was 42.31% which decrease to 33.33% in 2020 which
This is the portion of a company’s profit allocated to each outstanding share of common
stock.
This indicate a company’s ability to produce net profit for common shareholder
Interpretation
There was an increase in the earnings per share of the company from £0.5 per share to £0.6 per
share from 2019 to 2020 which indicate that the company has the ability to produce net profit for
Gearing 30%
Gearing 42.31%
Comparing the soft drink industry and MJ PLC in 2019, MJ PLC is in pace with the industry on
the gross profit margin of 28% and 28.8% respectively, which means that MJ PLC management
The operating profit margin of the company outperformed the industry which shows there is
more effectiveness and efficiency in management of 9.50% for industry and 12.22% for MJ
PLC.
The earnings per share of the industry and MJ PLC are the same which means there is
shareholder value.
The sale revenue per employee shows that MJ PLC is efficiently productive since RPE is
The gearing shows that MJ PLC has a higher leverage and more risky than the industry with a
The current ratio shows that the MJ PLC in 2019 the company can pay 2.25:1 of the short term
liability against the industry of 1.8:1 of its short term liability, which means MJ PLC is less
capable of paying its obligation because it has a larger proportion of short term asset value
Gearing 30%
Gearing 33.33%
Comparing the Soft Drink Industry in 2019 and MJ PLC in 2020, MJ PLC has a better
management than the industry on the gross profit margin of 28% and 28.8% respectively, which
The operating profit margin of the company outperformed the industry which shows there is
more effectiveness and efficiency in management of 9.50% for industry and 12.8% for MJ PLC.
The earnings per share of the industry and MJ PLC are the same which means there is
shareholder value.
The sale revenue per employee shows that MJ PLC is efficiently productive since RPE is
The gearing shows that MJ PLC has a higher leverage and more risky than the industry with a
The current ratio shows that the MJ PLC in 2019 the company can pay 2:1 of the short term
liability against the industry of 1.8:1 of its short term liability, which means MJ PLC is less
capable of paying its obligation because it has a larger proportion of short term asset value
Dividend Proposed 0 0
Number of Employees 10 9
this is as a result of the change in 2019 to 2020 without wage increase which is going to be 20%
but if there is wage increase of 5% then the change in 2019 to 2020 is going to be 14% which
The organization should also use the motivation theory, Maslow, A. H. (1943)
Appendix
Calculation
28.88%
2020
30%
2019
12.22%
2020
12.8%
2019
1500
550
2.25:1
2020
1400
700
2:1
2019
1250 – 500
550
1.36:1
2020
1400 – 600
700
1.14:1
450 X 365days
4500
36.5days
2020
600 X 365days
5000
43.8days
Settlement period for trade payable = Trade Payable X 365days
Credit Purchase
2019
190 X 365days
3200
21.7days
2020
350 X 365days
3500
36.5days
3200
500
6.4 times
2020
3500
600
5.83 times
500 X 100
(1900 + 1250) – 550 1
19.23%
2020
600 X 100
(2000 + 1400) – 700 1
22.22%
2019
500
150
3.33
2020
600
100
1100 X 100
1100 + 1500 1
42.31%
2020
900 X 100
900 + 1800 1
33.33%
Earnings per share = Net income – preferred Dividends
Weighted average shares outstanding
2019
250 – 0
500
2020
300 – 0
500
Wage increase
2020
300000 X 5
100
15000
4500000
9
500000
2020
5000000
10
500000