Economic Profit Reflections

Economic profit image

Ratio 2016 2015 2014 2013
Economic Profit £846,274 £2,553,856 £283, 757 -£12,883
Cost of Capital 10% 10% 10% 10%
Net Operating Assets £420,022 £675,415 £689,438 £882,016
Return on Net Operating Assets 211.48% 388.12% 51.16% 8.54%
Profit Margin 8.79% 29.22% 5.04% 1.17%
Asset Turnover 24.06 13.28 10.15 7.31

In 2016 BOTB’s OI was £888,276, this is the earnings for that year. In that same year the company had NOA of £420,022 and £882,016 in 2013. After restating the financial statements, the relationship between OI and NOA is shown and I conclude that it is not a growth company. However, it is an efficient company, its RNOA was 211.48% in 2016 however it has varied significantly over the four years. In 2016 BOTB had 10,114,580 shares on issue and economic profit of £846,274 which represents about £0.08 per share. The market price per share that same year was £2.19 which grew significantly from the previous years, 2015 bring £0.91 that’s a 240% increase. Back in 2013 its market price per share was £0.218 and then the firm’s economic profit was negative, however since then investors have received a good return and now its share prices have also grown.

The firm is very efficient to generate sales, in 2016 for each pound sterling of net operating assets BOTB generated £24.06. However, its assets, being cash at bank, is reducing and shareholders have received these profits through dividend payments over the last couple of years. The Profit Margin is not the best, however it is a profit, apart from 2015 when it received tax overpaid in previous years.

The main driver of BOTB’s economic profit is its Asset Turnover. The firm is generating sales very efficiently using its net operating assets. It does not take many assets for BOTB to generate income. With an average over the four years of 13.7 meaning it generates £13.70 for each £1 of net operating assets

BOTB have had a successful last couple of years since focusing their efforts to their website and generating on-line sales.

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