Ditan

Question 1

If we are looking at the performance of Brown Foreman there are several different measures we can use to look at both the vertical and the horizontal performance of the company internally and against its' competitors.

If we are going to examine the performance of Brown Forman we need to start of with the profit levels. The first profit ratio is the gross profit. The gross margin is expressed as a percentage. This is the level of revenue that remains when all of the direct costs for producing the goods or services are deducted form the revenue. This indicates the level at which direct costs account take up revenue. The calculation is shown below

| 1977 | 1978 |

Net sales | 396176 | 457071 |

Cost of sales | 274733 | 310539 |

Gross profit | 121443 | 146532 |

Gross profit margin | 30.6538 | 32.05891 |

Here we see the gross profit for 1977 was 30.65%, but this has increased in 1978 to 32.05%. This indicates that there has been an ability to reduces the cost of sales. The next profit measure can use is the net profit.

This net profit is a common ratio which is used by many stakeholders and is a primary efficiency ratio. This measure of net profit and is expressed as a percentage of the profit compared to the turnover. The basic calculation is the net profit the total revenue after all costs have been deducted, sometimes before interest and tax divided but mostly after tax and interest by the turnover, we will use the after tax figure (Elliott and Elliott, 1998). It is often used as a benchmark by which the company can be compared with other companies. The level of the margin will depend on a range of factors, such as pricing policy and industry. Whilst the figure is interesting the understanding of a company’s position needs to be considered in a greater context, such as the way in which this is moving against the company’s own performance and how it compares to the industry average. This gives us the following.

| 1977 | 1978 |

Net...