Profit and loss account - - Assignment Example

PROFIT AND LOSS ACCOUNT By + Profit And Loss Account A B 20112012Gross Profit Margin26%28%56%58%Net Profit Margi12%10%20%23%Stock Turnover25 days22 days130 days128 daysCurrent Ratio1.6:11.6:12.14:12.14:1Acid Test0.5:10.34:11.2:11:1Debt Collection Period1.3 days1.2 days45 days40 days1. Looking at the table (including the ratios for 2012), determine which of these organizations is a grocery store and which is a large manufacturing concern. Provide justification for your answers.To determine which company are grocery and the one that is manufacturing, there need to evaluate the stock turnover ratio.

This ratio determines the time the company takes before the inventory is replaced. A low ratio reflects that the company is making low sales and in the end, there is excess stock. A higher ratio reflects high sales. Since a grocery deals with fast moving goods, which are perishable, we expect the stock turnover to be higher. In this case then B is the grocery store and A is of manufacturing concern.2. Compare and discuss each companys performance for 2012 to its own performance in the previous year 2011.

A company performance is mostly analyzed using different ratios. This ratio determines the efficiency, profitability and liquidity level of the company. Profit margin is one of the ratios that is used to determine the amount of profit a company makes over time. Both A and B there is improved performance since the profit margin is seen increase in the year 2012 (Siddiqui, 2005).Acid test ratio and current ratioThese two ratios determine the liquidity position of a company. While current ratio includes inventories, acid test ratio does not.

They measure the capability of a company to meet up the obligations that are falling due. A ratio of higher than one is considered good. Both A and B there is improved performance since the acid test ratio increased in 2012 while the current ratio remained unchanged.Stock over and debt collection period These ratios measure the ability of the company to convert stock to cash. In both A and B there is reduction in debt collection period and this implies increased efficiency since the period it takes for the debts to be cleared is reduced.

This in the end shows an improvement in the year 2012.BibliographySiddiqui, A. S. (2005). Managerial economics and financial analysis. New Delhi, New Age.