Emerald Energy Plc Case Study Example | Topics and Well Written Essays - 2750 words

Emerald Energy Plc - Case Study Example The revenue earnings of Emerald Energy have shown a sharp increase during the year 2008 as compared to the previous year. The increase is significant to the extent of 94% over the sales revenue for the year 2008. The change in the sales revenue during the year 2007 as compared with 2006 is showing a decline of 3.38% over 2006 figures. This trend is depicted in the following graph. The ability of a firm to generate profits can be assessed by working out the profitability ratios for a historical period and by analyzing the sources of income. The gross profit margin, operating profit margin and net income as a percentage of total turnover presents a realistic view of the firm's ability to generate profits. "Profitability ratios offer several different measures of the success of the firm at generating profits." (NetMBA, 2007) The ratios worked out for the Company and the ratio derived for the industry from the published sources are presented below: The above table indicates that the profitability o... The gross margin has increased mainly because of the increase in the sales revenue due to higher prices of petroleum products during early 2008. The increase in gross margin can be traced to the lower cost of sales. The cost of sales for the year 2008 was 29.25% as against 69.92% for the year 2007. This accounts for the steep increase in the gross margin as well as the increase in the operating and net margins. The increase in the profitability can be observed from the following graph. Return on Shareholder's Equity (ROE) The return on shareholder's equity ratio is another important investment valuation ratio used by the investors to evaluate the profitability of the company and its ability to generate earnings by utilizing the capital invested by the equity shareholders. This ratio is considered as more meaningful to the investors. The return on shareholder's equity has increased significantly over the three year period. Presently as per the latest financial information available on the company, the return on shareholder's equity ratio is stated as 28.45% while the ratio for the industry stands at 17.53 (Reuters, 2009). Analysis of Operating Efficiency The working Capital ratios indicate how well the company is able to manage its working capital. "The asset management ratios are also known as working capital ratios or the efficiency ratios. The aim is to measure how effectively the firm is managing its assets." (NetTom, n.d.) The efficiency ratios for Emerald Energy are exhibited below: 2006 2007 2008 Industry Receivables Turnover (Times) 12.06 9.41 5.76 12.26 Total Assets Turnover