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Hello! I am having some trouble understanding ratios and coming up with an explanation for it. If you could please help me understand it and how to come up with a valid reason it would be wonderful. I hoping to ace this practice so next week I can do well on my exam. I have attached the balance sheet and the income statement. I can figure out ratios but I cant really explain as why it would be good or bad. Any help or guides would be greatly appreciated.
Practice #2 Commentary:in 5yrs this company nearly doubled their assets.it would appear that we would want to include something about that in our analysis, wouldn't you agree?
another observation from the balance sheet is that equity starts out at just under double total liabilities and ends up almost 4x total liabilities. This is a fact, but what does it mean to the health of the company? is it a good result or a bad result that equity is now much higher as a percentage of liabilities.
interestingly, sales increase, but not very significantly and the same is true for profit after tax. In fact, profit actually deteriorates as the sales increase. What is causing that?
Remember, you "job" here is to use ratio analysis to determine where you must improve performance. THink about the relationships among various accounts. In other words, what accounts on the balance sheet are affected with a sale? Whats happening with gross margin? with receivables and inventory levels? If sales are increasing, are receivables increasing proportionately? DSO increased almost 9days; Avg Days in Inventory increased approx. 1.5 days.
This company isn't easy to analyze. There are some good things happening but also we see significant deterioration in other areas. There are many areas that require attention. Review the financial statements and notice what is going on.
Determine where the most significant improvement, change, deterioration exists and choose your ratio calculations accordingly.
Put yourself as CEO of the company, what would you do? where would you begin? based on the info what do you believe needs attention more than anything. Answer the following Questions.
1. were you able to pinpoint the areas that are of greatest concern to the company? explain
2. with excel did you accurately calculate the ratios that support your position? explain
3. finally, are your recommendations valid? explain
*your recommendation must be valid and support your ratios result for all three questions.
http://d.yimg.com/hd/answers/i/de6e8cd13…
Practice #2 Commentary:in 5yrs this company nearly doubled their assets.it would appear that we would want to include something about that in our analysis, wouldn't you agree?
another observation from the balance sheet is that equity starts out at just under double total liabilities and ends up almost 4x total liabilities. This is a fact, but what does it mean to the health of the company? is it a good result or a bad result that equity is now much higher as a percentage of liabilities.
interestingly, sales increase, but not very significantly and the same is true for profit after tax. In fact, profit actually deteriorates as the sales increase. What is causing that?
Remember, you "job" here is to use ratio analysis to determine where you must improve performance. THink about the relationships among various accounts. In other words, what accounts on the balance sheet are affected with a sale? Whats happening with gross margin? with receivables and inventory levels? If sales are increasing, are receivables increasing proportionately? DSO increased almost 9days; Avg Days in Inventory increased approx. 1.5 days.
This company isn't easy to analyze. There are some good things happening but also we see significant deterioration in other areas. There are many areas that require attention. Review the financial statements and notice what is going on.
Determine where the most significant improvement, change, deterioration exists and choose your ratio calculations accordingly.
Put yourself as CEO of the company, what would you do? where would you begin? based on the info what do you believe needs attention more than anything. Answer the following Questions.
1. were you able to pinpoint the areas that are of greatest concern to the company? explain
2. with excel did you accurately calculate the ratios that support your position? explain
3. finally, are your recommendations valid? explain
*your recommendation must be valid and support your ratios result for all three questions.
http://d.yimg.com/hd/answers/i/de6e8cd13…
Help with Ratios and Accounting practice please?
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