Solution-Explain the discrepancy between the poor

Explain the discrepancy between the poor performance

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Reference no: EM132920943

Question - The following ratios have been calculated for Valley Steel Homes, a supplier of steel house frames to the growing house market east of Melbourne.

	20X0	20X1	20X2	20X3
Return on total assets	10%	11%	12%	7%
Return on sales	50%	51%	52%	33%
Sales turnover	?	?	?	?
Debt ratio	50%	50%	50%	33%

These ratios are determined by the following calculations:

Return on Total Assets = Net Profit before Interest and Tax/Average Total Assets Return on Sales = Net Profit before Interest and Tax/Sales

Debt Ratio = Interest Bearing Liabilities/Total Asset

The management of Valley Steel Homes is working towards a long-term plan to increase market share as devised by the Board of Directors. In 20X3 the Board approved a bonus to the Managing Director because of the company's excellent performance in 20X3.

Required - Explain the discrepancy between the poor performance shown by the ratios above and the good performance of the Managing Director recognised by the Board. (Your response should make reference to the components of the ratios as indicated, as well as commenting on the usefulness of such ratios.)

Reference no: EM132920943

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Explain the discrepancy between the poor performance

Reference no: EM132920943

Reference no: EM132920943

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