Profitable Ratio Analysis of Thorntons

June 9, 2018 General Studies

This analysis ratio based on FAME report and annual report of Thortons (PLC) from 2007 to 2010. 1. Gross Profit Margin During period 2007-2010, Thorntons was achieved the highest gross profit margin in 2007. It was increased the sales/revenue 5. 3% (from ? 176. 60m to 186. 00 m). In 2008 the sales was increased 11. 9% (from ? 186. 00m to 208. 12 m) however the gross profit margin was decreased due to the high cost of good sales compare to previous year which was increased 19. 7%. In financial report 2009, the gross profit was declined from 105. 05 m to 104. 969m and declined of gross profit margin from 50. 5% to 48. 87$. In 2010, there was increased in gross profit margin though the sales was decreased from the previous year. In terms of performance against its competitors in similar industry, the performance of Thortons is relatively higher during period 2007-2010 (Figure. 1). The performance of other competitors, Dunhills, only could achieve the 42. 16% in 2010. Compare to its competitors , it was indicated that Thorntons has high gross profit margin, meaning that Thortons has high production efficiency.

Having High gross profit margin, Thorntons could pay its operating expense, tax , employee benefits etc. 2. Operating Profit Margin In view of its Operating Profit Margin, Thorntons performance was increased in two consecutive years from 2007 to 2008 with ratio 3. 81 % and 4. 03%. This increase in operating margin was followed by declining in two consecutive years 2009 and 2010 with ratio 3. 77% and 2. 86%. These declined of operating profit margin due to increased in the expenses, especially in employee benefit and inventories expenses which continuously rose from 2007 to 2010.

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In addition the strategy of company to introduce many new products, increased our multi-channel offer and invested significant sums in new point of sale systems and factory automation has increased the cost. Furthermore the economic downturn from 2009-2010 was pressured the company to achieve better income. Compare to the Thorntons’s competitors, the performance of operating margin is less than Dunhills which achieved operating margin average in four years 16. 8% far above Thorntons and Farrero. The decreased of operating margin was happened with Cadbury which fall from 2007-2008. . RETURN ON SHAREHOLDER FUND (ROSF) ROSF measures the profit against total equity invests by share holder. In this regard, the calculation of profit is using profit before tax while other calculation, using profit after tax. Thorntons has stability performance in the middle range to returning the shareholder funds from 2007 up to 2009 compare to its competitors. However the ROSF was decreased in 2010 due to decrease in profit before tax 2. 4% from 2009 to 2010. On the otherhand,

Since the Revenue (sales) over the years is relatively flat and higher compare to its competitor, it is recommended to reduced the cost of good sales to increase the gross profit by identifying the possibility to reduce the cost from its supply chain operations from procuring raw materials, reducing number of inventories, optimization in line production and goods stock, reviewing the networks selling and model of distribution.

It is indicated and might be high opportunity to gain sales revenue by putting right model of contract sales to anticipate the seasonal conditions. 2. To increase the Operating profit, it is recommended that Thortons to reduce the administration expenses or divested especially in outlet which is indicated unprofitable and focus on the optimum selling and distribution model.


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