#Assessment 2 Step 3 - Ratio Analysis

Ratios Commentary

In terms of financial ratios, it provides a useful starting point, assisting in understanding Bapcor's economic and business performance over the past four years. Although these ratios help identify trends and relationships, they are not conclusive. Therefore, to clearly understand what is going on in Bapcor's business operations, deeper analysis is needed to understand.

The first aspect I analysed was profitability. Bapcor's net profit margin saw a substantial increase from 6.8% in 2022 to 43.3% in 2023. This indicates that the company was able to generate significantly more profit per dollar of sales during 2023. However, the profit margin then fell to -8.0% in 2024 before making a slight recovery to 1.4% in 2025.

A similar pattern is observed in the Return on Assets (ROA). ROA improved from 6.3% in 2022 to 41.9% in 2023 but then became negative in 2024 before showing slight improvement in 2025.

These ratios suggest that Bapcor experienced a very strong year in 2023, but faced a notable decline in profitability in 2024. While there was a slight recovery in 2025, profitability remained significantly lower than in earlier years. Although these figures reveal what happened, they do not clarify the underlying reasons for the drop in profitability, leading to questions about whether it was due to increased costs, reduced demand, one-time expenses, or wider economic factors.

The efficiency ratios tell a different story. Total Asset Turnover improved from 0.9 times in 2022 to 1.1 times in both 2024 and 2025, indicating that Bapcor became more effective at using its assets to generate sales. Additionally, Current Asset Turnover rose from 2.2 times to 2.4 times, suggesting that management was utilising current assets more efficiently over time.

What's particularly noteworthy is that while efficiency increased, profitability decreased. This indicates that the main issue was not in making sales but in converting those sales into profit.

Bapcor's liquidity situation seems fairly stable. The Current Ratio stayed between 2.2 and 2.4 throughout the examined period, suggesting that the company is well-positioned to meet its short-term financial obligations. Meanwhile, the Quick Ratio remained around 0.7 to 0.8, indicating that a substantial portion of current assets is tied up in inventory, which is typical for a company in automotive parts distribution. Overall, I do not see significant liquidity issues based on these ratios.

The Debt-to-Equity ratio increased from 54.9% in 2022 to 79.9% in 2024, before slightly decreasing to 75.0% in 2025. This suggests that Bapcor became more dependent on debt financing. While higher debt can enhance returns during favorable market conditions, it also increases financial risk when profitability falls.

Additionally, the Times Interest Earned ratio fell sharply from 32.7 times in 2023 to a negative value in 2024, before experiencing a slight recovery in 2025. This decline reflects the drop in profitability during 2024 and indicates that earnings were inadequate to cover interest expenses comfortably.

The market ratios also mirror the changes in profitability. Earnings per Share grew from $0.37 in 2022 to $2.58 in 2023, but turned negative in 2024. This signifies that shareholders faced a significant drop in earnings during 2024, aligning with the overall decline in profitability observed in other ratios. Thus, these market ratios imply that investor confidence in the company’s future performance likely diminished after 2023.