Imperial Tobacco

1. Profitability ratios

Profitability ratios will illustrate the joint impact of liquidity, debts, and assets management on the overall operating results. In other words those ratios examine the management’s operating capabilities and effectiveness (E. Brigham, J Houston2008).

2.2. Return on capital employed (ROCE)

ROCE ratio is considered to be one of the most efficient ways to measure the profitability and proficiency of a company's capital investments. It collates capital invested with operating turnover to show how the company is utilizing capital to produce revenues (E McLaney, P Atrill 2008).

The table below illustrates the ratios for Imperial Tobacco Company between the years 2006 -2009

ROCEImperial Tobacco plc (IT) | 2006 | 2007 | 2008 | 2009 |

| 37.15% | 27.30% | 7.26% | 13.90% |

These figures shows that for every £ 1 the company invested in each year a certain percent of return of profit was obtained. For example for every one pound the company invested in 2006 a 37 p return of profit was gained. We can obviously notice that there is a sharp decline between 2006 and 2007; this decrease is due to the boost in adjusted net debt which mainly occurred due to the possession of Commonwealth Brands. In 2008 another clear vast decline was observed because the company borrowed more funds to be able acquire Altadis.On the other hand 2009 ROCE increased compared to 2008 but still below what the company achieved in 2006 and 2007, this increase resulted from the long term benefits of the acquisition of Commonwealth Brands and Altadis which actually increased the revenues of the company by increasing its market share. In the other hand long term debts prevented the company from getting close to the results of 2006 and 2007 since those debts are accumulated and will require years to be paid. (New York Times 2007)

However ROCE ratios for British American Tobaccos Company are illustrated in the table below

ROCEBritish American Tobacco plc (BAT) |...