Essays on Accounting For Decision Making- Assignment- Trimester One, 2010 Assignment

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IntroductionFantastic Holdings is a furniture retail, manufacturer and importer of it. The company has a huge presence and deals in “home improvement, office supplies, and other products”. (Fantastic Holdings Website, 2010) The fact that the company deals in so many products and huge reach has given a wide market. The company has a presence in supermarkets, malls, departmental stores and provide the basic necessities for people thereby enabling them to grow. Harvey Norman Holdings Ltd is also a furniture giant. The company deals in “different furniture and home improvements”. (Harvey Norman Holdings Website, 2010) The wide range of product and dispersion has made it a huge success.

The company with their policy to satisfy customers has grown and is able to capture a good market. The financial statement of both the companies reveals so. Even the share prices shows improvement. With more consumers moving towards supermarkets gives an opportunity to expand in overseas. Financial AnalysisFinancial analysis is very important for all business. Analyzing the statement helps in “planning, budgeting, monitoring, forecasting and improving the financial performance by taking vital decision”.

(Micro Strategy, 2010) Proper analysing helps a long way to “understand the financial health”. (Micro Strategy, 2010) It helps to identify trends and compare with competitors and industry to gain advantage. The following is the ratios for Fantastic Holdings Ltd and Harvey Norman Holdings LtdProfitability RatiosProfitability ratios form a very vital part of financial analysis. This ratios help to understand the profit which can be attributed to the different factors which work in tandem to achieve the desired results. The profitability ratios are as followsGross Profit Margin: “It is defined as the profit generated after deducting cost of goods sold and before the indirect expenses are accounted for and considers only the direct expenses”.

(Kennon, 2010) Gross profit helps to find out the actual profit that is attributed directly to the product. It is calculated as– “Gross Profit / Sales X 100”. The ratio for both the companies areThe ratio indicates consistency for Fantastic and Harvey Norman. Fantastic Holdings has a higher gross profit indicating soundness in manufacturing process. It also shows that the strategies are well managed. Harvey Norman Holdings on the other hand needs to improve its performance.

Net Profit Margin: “It is defined as the profit generated per dollar of sales and is calculated after all the direct and indirect expense has been considered”. (Kennon, 2010) Organisations prefer this to be high. It is calculated as “Earning before Interest and taxes (EBIT) / Sales X 100”. The ratios for both the companies are asIt is seen that the net profit has decreased for Fantastic Holdings Ltd. This is a worrying factor and reflects inefficiency to maintain the indirect expense.

When we compare it to the gross profit margin it shows a huge dip signifying the amount of indirect expenses like marketing, distribution and other expenses the company incurs. Return on Assets: “It is defined as the amount of profit generated for per dollar of asset”. (Joseph, 2010) It helps to identify whether the assets are utilized properly or underutilized. It is calculated as “Earning before Interest and Taxes (EBIT) / Average assets X 100). The ratios for both the companies are as

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