Prezzo Financial Report

This report will demonstrate an evaluation of Prezzo Restaurant performance. It will evaluate how well the company is doing in terms on profitability, liquidity and efficiency based on those ratio analyses comparing the year of 2012 and 2013. Prezzo is a PLC that means that have a large number of shareholders. Prezzo's revenue have increased by £22 million from 2012 to 2013 which may be a consequence of the expenditure of the business by opening 28 more chains.




The return on capital employed identifies how efficient Prezzo can compel profit from the capital employed. According to calculations, Prezzo earned 18.895 pounds for each pound invested in 2012 and 17,210 pounds for each pound invested in 2013. The motive for this decrease may be because of the increase on the impairment of property, plant and equipment, staff cost and operating lease rentals. The staff cost increased because wages and salaries expenses increased. Moreover, there was no pension cost in 2012 which had in 2013, those were of £62,000 as a result of the expansion of the company by 28 more restaurants in 2013. In sum, Prezzo is not getting so much return on the capital employed as a result of the increase on expenses regarding the new opening.


The Gross Profit Margin indicates the margin the company makes comparing the price they brought the product and the price they sold the products for, so the higher the Gross Profit margin, the better. The Gross Profit Margin has decreased from 2012 (14.46%) to 2013 (13.90%); this is because although there was an increase of sales there was also an increase on the expenses. These expenses regard to the opening of new shops, which means that the administration costs, property plant and equipment costs had increased.




Moreover, the Operating Profit Margin measures what is left from the revenue of the company after the liabilities were paid. However, it does not include other expenses such interest, which increase and taxes that decreased. The Operating Profit Margin has decreased from 11.98% (2012) to 11.08% (2013) which is almost 1 %. This decrease has resulted from an increase on the impairment of intangibles as well as an increase on the expenses. Overall the gross profit margin and the Operating Profit Margin have decreased because of the increase on expenses.




The current ratio assesses the liquidity of the business. Prezzo's current ratio increased from 0.50:1 (2012) t 0.54:1 (2013). This increase means that the company level of liquidity is getting better, and they are more liquidly to pay the current liabilities. However, the fact that the level of liquidity is getting better it does not mean that it is in a good position because it shows a current ratio below 1. Prezzo is a restaurant and under those circumstances, it is more likely to turnover the current assets. Furthermore, Prezzo may have to ask the bank for an overdraft facility or increase the payables days.





The Acid test ratio is also known as quick ratio measures the liquidity of the company excluding inventory. The inventory is known as the more illiquid item in current assets because they are not as easy to be turned into cash. Prezzo showed an acid ratio of 0.37:1 in 2012 while 2013 it was 0.40:1. In sum, resembling the current ratio the acid test ratio also shows that Prezzo in an unfortunate position regarding liquidity once it shows a ratio below 1.




Inventory days illustrate the average number of days the products are in store on stock. The inventory days slightly decreased a day because in 2012 it was 13.46 whereas in 2013 it was 13.42. The decrease resulted of the inventory and cost of sales.

A trade receivable day demonstrates the average number of days that Prezzo takes to be paid by the costumers. Prezzo's trade receivables days increased one day. Trade receivables are part of the current assets which can influence the trade payable days, if the costumers are taking longer to pay it will be more difficult for Prezzo to pay the suppliers.




Trade Payables days illustrate the average number Prezzo takes to pay the suppliers. Prezzo should respect the suppliers by paying the debts on time to do not lose them. The trade payables day increased from 47.7(2012) to 48.49 (2013) which is almost half of a day.




In conclusion, Prezzo's Profitability ratios are showing that the restaurant is not doing so well comparing to the year before regarding getting the return on capital employed and high profit. With new stores opened, there was an increase on expenses that explains the decrease on profitability ratios. Furthermore, it could be possible to predict that Prezzo is not doing so well with the liquidity level. However, it must be taken it account that Prezzo is a restaurant they would be more quick to recover the current assets. Finally, Prezzo's efficiency level is getting better once the inventory days have decreased but because costumers are taking longer to pay it may affect the days Prezzo takes to pay the suppliers.