Interpreting Financial Ratios

After reviewing the data it appears that Luna lighting has a modest accession in sales. This is shown by the increase turnover which increased from 8.1 to 8.3 and is agree to the industrial norm. The business has failed to achieve the levels of routinefulnessability that other businesses in the same industry have managed and there are some(prenominal) reasons to back up such a statement. Lunas tax revenue margins of 4.3% throughout the three years are better than that of the industry but it seems that Luna is incurring a considerable amount of run expenses as well as high engage cost which might have resulted to the debt taken for the medium to short term. This event can be O.K. up by the direct profit margin has fall from 8 to 6.3% in both years. Such a drastic fall between the devil ratios can only occur when there are increasing operating expenses. A fall in the net profit margins also suggests that there are higher interest be being serviced by the business. The same factor also backed up by rigid charge coverage which has fallen from 5.5 to 4%.

Another reason for poor profitability is that the fixed pluss of the business are not being properly utilise to generate sales and the debt taken up is also not being utilized to good effect. The low fixed asset turnover is evidence of poor debt utilization since have on equity is the product of profitability asset turnover and use of debt/equity mix so that a low return on equity figures is obtained. From this we can conclude that higher expenses, interest servicing, and poor use of funds and assets are the main pay back of lack of profitability for Luna. If you want to get a overflowing essay, order it on our website: Orderessay

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