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Financial statements interpretation - Essay Example
This report aims at analyzing the financial performance of VDB Limited for the past two years. The performance of the company can be studied using various techniques, the most common and useful one being the ratio analysis. The ratios of importance are chosen and are computed…
The main reason is that the ratios are simple to calculate. Moreover, they provide a standard for comparison between companies or between the company and the industry in general. They can also be applied to various time periods of the same company and can provide valuable information related to the trend and future prospects (Pendlebury and Groves, 2004). The ratios that are chosen for analyzing VDB Limited include Operating Profit Margin, Return on Assets, Current Ratio, Quick Ratio, Average Collection Period, Stock turnover period. The ratios are computed for VDB Limited based on the financial statements provided for the two years. This will provide a base for comparison of the
The profit margin is the measure of the company's ability to earn profit from the generated revenue. This is a very important and crucial ratio as this depicts the earning capacity of the company (Samuels et al, 2000).
It is clear from the values that the profit margin has declined steeply in 2008 relative to 2007. Though the revenue is much higher in 2008, the purchases and the expenses are relatively higher and hence lesser profits.
This ratio measures the income generating ability of the assets. ...