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Financial Analysis of Emerald Energy Plc

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The financial performance of the Company during the year 2008 which enabled the Company to generate spectacular cash reserves was so impressive that it made a comparison of the performance of the previous year’s interesting.

The revenue earnings of Emerald Energy have shown a sharp increase during the year 2008 as compared to the previous year. The increase is significant to the extent of 94% over the sales revenue for the year 2008. The change in the sales revenue during the year 2007 as compared with 2006 is showing a decline of 3.38% over 2006 figures. This trend is depicted in the following graph.

The ability of a firm to generate profits can be assessed by working out the profitability ratios for a historical period and by analyzing the sources of income. The gross profit margin, operating profit margin and net income as a percentage of total turnover presents a realistic view of the firm’s ability to generate profits. “Profitability ratios offer several different measures of the success of the firm at generating profits.” (NetMBA, 2007) The ratios worked out for the Company and the ratio derived for the industry from the published sources are presented below:

The above table indicates that the profitability of the company has shown a sharp increase in the year as compared to the year 2007, in respect of gross margin, operating margin and net margin. The gross margin has increased mainly because of the increase in the sales revenue due to higher prices of petroleum products during early 2008. The increase in gross margin can be traced to the lower cost of sales. The cost of sales for the year 2008 was 29.25% as against 69.92% for the year 2007.&nbsp.&nbsp.