The paper "Financial Analysis of Gowns of Envy Pty Ltd" is a great example of a finance and accounting article. Gowns of Envy Pty Ltd is a wholesale business that deals with imported Wedding Gowns and fabrics. They supply some of the leading Australian retailers. This business was started in 2008 and has now been operating for the past three years. To achieve its growth strategies, the business wants to open up to a new line of business by supplying an alternative line of product. This project would require substantial modifications of the existing facilities- which inspired the owners to seek bank credit to finance the expansion (Vandyck 20). The purpose of this report is to analyze the liquidity, profitability and financial stability of the business, with the aim of establishing whether its creditworthiness is done to justify its credit application.
To achieve this purpose, an extensive analysis of financial information since the business was started has been undertaken. In particular, the report has analyzed financial ratios and percentages and tried to establish the implications of the trends. The reliance on the information on the analysis is however limited due to some factors.
It is difficult to categories the business in various industries due to diversification. This makes the inter-business comparison very difficult. Also, different firms use different accounting policies and methods such as depreciation, provision and other estimates which again make a comparison of the business with others in the industry a very difficult affair. The other limitation is that ratios are used for short-term planning because they are compiled at a point in time and may be affected by shorter changes.
Finally, ratios are computed from historical data and therefore are not very good future indicators. This report begins with analyses of the company’ s profitability. This is achieved by comparison the firm’ s profitability ratios such as return on assets and price-earnings. This is followed by liquidity analysis which uses ratios such as quick ratio and current ratio among others. The last area of analysis is financial stability which uses ratios such as the debt ratio and interests rates to establish the ability of the firm to remain financially stable in the future.
Keown, Arthur. Foundations of finance: the logic and practice of financial management. Tsingua: Tsingua University press, 2003. Print.
Steffy, Wilbert., Zearley, Thomas., & Strunk, Jack. “Financial ratio analysis.” Journal of business accounting 32 (2007): 23-27. Print.
Vandyck, Charles. Financial Ratio Analysis. New York: Trafford Publishing, 2006. Print.