"3.0 Theories & conceptsCost could have distinct connections to production/output. Further, costs could use for variousbusiness purposes; cost accounting, valuation, financial accounting, budget and capitalbudgeting. Therefore, there are numerous techniques of classifying costs according to theircorrelation to production/output. Fixed and variable costs are commonly utilised by every firm(Dahlgaard, Kristensen & Kanji, 1992). Fixed cost does not change when output change but thevariable cost would change when production units change. Further, sometimes, fixed coststermed as an overhead cost. Fixed costs incur whether an organisation productions 1 units or 100units. In making budgets, fixed cost might contain depreciations, rents, and salaries. Productionfixed cost possibly will contain such things as insurances and tax (Modigliani & Miller, 1958).These overheads are remaining stable in the face of despite variations in productions. On theother hand, the variable cost would fluctuate when the level of production change. In amanufacture, material and labour costs are commonly variable costs, which improve as thequantity of manufacture enhances(Wang & Wen, 2010). Moreover, it requires extra material andlabour to make more production, as a result, the cost of material and labour fluctuates. Marginalcost defined as changes in total cost, which occurs when the amount manufactured increased byone extra unit.In other words, this is the cost of making one more item(Modigliani & Miller,1958).Marginal cost is the cost of variable containing material and labour cost, along with anexpected. Marginal costs are variable costs consisting of labour and material costs, plus anestimated component of overheads. In businesses where average costisstable, marginal costs aregenerally the same as average costs (Sturzenegger& Zettelmeyer, 2007). Direct costs are thecosts can totally ascribed to the manufacture of particular products or service. Further direct costrefers to labour, expenditures and materials connected to the manufacture of goods. Indirect costis the cost, which is not instantly responsible to a cost item. Indirect cost contains safety,management and personnel cost (Ofek & Richardson, 2003).4.0 Cost behaviours of CargillsThe Cargills PLC has utilised fixed and variable cost for their day-to-day business operation.However, the mostly firm used fixed cost in their business rather than used variables or marginalcost. According to the Cargills PLC annual report (2015) the firm regularly pay rents, electricitybills and water bills, these payments will come under the fixed cost because the firm agreed toPage | 3 pay payments to suppliers whether firm perform well or not in the marketplace. Similarly, thefirm also have to give salary to their staffs whether the firm obtain profit or loss in theaccounting month (Cargills PLC, 2013). The Cargills PLC used higher amount of fixed cost todevelop and operate their business in FMCG, Banking industry, which means higher amountfixed cost, requires to enter FMCG market.As result smaller firm unable to enter this market,which would offer more opportunities to the firm to enhance their business operation across theisland? Likewise, high fixed costs firms like Cargills PLC would feel increment of profit.However, if an organisation has huge amount of overhead/fixed cost, profit margin couldsqueeze when sales decrease, that increase risk level (Cargills PLC, 2016; Cargills PLC, 2013,Cargills PLC, 2011).5.0 Cargills PLC Financial PerformanceThis financial analysis report has created in order to analysis the Cargills PLC financialperformance and financial position. The author utilizes firm balance sheet and income statementsin order to identify the financial performance of the firm. This report predominantly concentrateson net profit margin ratio, operating profit margin ratio, gross profit margin ratio, return oncapital-employed ratio (ROCE), gearing ratio, payable days, receivable days, payable days andreceivable days and interest covering ratio.5.1 Operational Profit Margin Ratio and Net Profit Margin RatioPage | 4 Figure 3: Profit before and after taxationSource: Cargills, (2015)Comparing the firm net profit margin, in 2012, the firm distribution cost and administrativeexpenses have decreased by Cargills PLC management, which helps the firm to increase their netprofit margin 1.82% (2012) to 3.04%. On the other hand, company net profit margin decreasedin 2014, which is 2.92%. In 2014, the firm other expenses increased hugely (68,371,000 to456,979,000). Further, the increment in other expenses has negatively impact on the firm netprofit margin and it shows the firm operate their business in an inefficient way.Additionally,examines 2010, 2012 and 2014 financial years of Cargills PLC, firm operational profit marginincreased drastically in 2012 (3.71% to 5.36%), and also, in 2014, it increases further (5.61%).There are several factors have a positive impact on the firm operational profit margin. Otherincome is the one of key factor assist the firm to increase the operational profit margin ratio.Other income has increased in 2014 when comparing with 2012 financial year. In 2012, it was1,184,076,000 but in 2014, it increased slightly (1736753000). Therefore, the Cargills PLCshould cut down the distribution expenses, administrative expenses and other expenses in orderto increase the firm net profit and operating profit margin in future. Likewise, outsourcing andnoncore practices will help the firm to reduce those expenses and using those methods would addsome other benefit to the firm. Page | 5 "