Although the sales of Grand Company increased from BD7450 in year 5 to BD10660, there was a subsequent increase in the purchases and cost of sales leading to a fall in the gross profit margin. The operating profit margin also fell from 10% in year 5 to 5% in year 6. Grand Company earned a better gross profit of BD3500 in year 6 as compared to the gross profit of BD2915 in year 5. However, this was not sufficient in improving the operating margin of Grand Company as expenses increased drastically from year 5 to year 6. This drastic increase was due to the addition of interest expense on the bank loan taken by Grand Company to inject more funds into the business. Return on capital employed is a measure of assessing how much return a company is generating on the capital that is employed in the business. Grand Company took a bank loan in year 6 and hence had more capital as compared to year 5. However, the additional capital was not used efficiently and this is why the return on capital fell drastically from 12% in year 5 to 6% in year 6. Overall, the profitability of Grand Company deteriorated from the year 5 to the year 6. Grand Company should take measures to increase their revenue and reduce their costs in order to stay profitable and sustain their existence in the business. The liquidity of Grand Company remained stable from the year 5 to year 6. There was not much fluctuation in the current and acid test ratio. The efficiency of Grand Company improved in year 6. The cash conversion cycle improved indicating that Grand Company’s ability to earn cash improved in year 6. Grand Company took a bank loan to inject liquidity into the business which lead to the interest coverage ratio in the year 6. The EPS of Grand Company fell drastically from year 5 to year 6 due to the fall in the net income in year 6. Users of Financial Statements: Objective of Financial Statements is to produce information that is as useful as possible for many different types of users of financial statements. Users of financial statements include: Investors: a potential investor uses the financial statements to find out if the investment is suitable or not in the prospective company. Analysts: An analyst uses the financial statements and recommends. Shareholders: Shareholders Regulatory authorities: Tax authorities may use financial statements of company to find out if the taxes are calculated in an appropriate manner. Financial institutions: banks and other lending companies assess the financial statements of a company before giving out loans to assess whether the company will be able to honor its obligations Trade Creditors: Trade creditors and vendors who supply goods on credit also use financial statements to assess the ability of a company to repay its short term debts. Owners and managers: they use the financial decision to make important strategic decisions that help the company to grow and
Question 1: Profitability: Ratios year 5 year 6 Profitability: Gross Profit margin 39% 34% Operating profit margin 10% 5% return on capital employed 12% 6% b) Liquidity: Current ratio 3.38 times 3.21 times Acid test ratio 1.61 times 1.66 times c) Efficiency: inventories turnover period 92 days 82 days average settlement period for trade receivables* 60 days 53 days sales revenue to capital employed 1.28 times 1.25 times average settlement period for trade payables 48 days 57 days *for year 5, given trade payables an trade receivables are used since average cannot be calculated d) Financial Gearing interest cover* - 10.7 times *there is no interest payable for the year 5 and hence interes…
However, the financial statements of a company provide the absolute figures (amounts in currency units). These amounts of financial statements can be used for comparison in respect of the past performance of the company. But what if an analyst wants to compare the financial performance and position of a company with other competitor or with the industry?
Theoretically, market has a beta of 1.0 and the stock beta calculated show how much they deviate from the market. In 2006 and 2007, Tesco Plc stocks showed a high beta indicating a higher return but are riskier. Negative return is shown in 2008 as an effect of the share market plunge following the global recession but was slowly recovered from 2009.
This paper will review a financial statement of a local government in Virginia and analyze the method of accounting used for the funds. It will evaluate the use of the method of accounting for the funds as required by GASB, and assess the application and compliance of GASB statement number 34.
This is because the major priority of the financial statements produces it to report on near term inflows and outflows. The general fund exists among the county’s major fund and other government funds. The cash basis accounting chosen by the accounting team of the company is very convenient.
Therefore, after identifying the potential users of statements, it assesses the qualities essential for financial statements reporting and evaluates the importance of financial statements formats and technology in the process of accounting and financial reporting.
This can be due to increase in expenses which decreased the resulting net income or could be due decrease in the price of company's inventory. Going deeper into the analysis one can safely conclude that this decline is brought about by an increase in expenses.
Financial statements are prepared in a manner that all the information inside the statements is identical as far as format as the financial statements of different company in a different industry. This
Negative return is shown in 2008 as an effect of the share market plunge following the global recession but was slowly recovered from 2009. 10
This report discusses the finance performance and position of Tesco Plc for
Financial statements of one accounting period must be comparable to other financial statements in order for the financial statement users to be able to derive meaningful conclusions concerning the trends of the financial position. It is very important for investors to have comparable financial information to make an optimal investment decision.
The aim of this essay is to identify and select any two companies from the same industry and perform financial analysis of their past four years with a view to evaluating such published accounts. For clarity to be attained, this essay will use
10 pages (2500 words)Essay
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