Essays on Financial Analysis of Ocean Paradise Pty Ltd Case Study

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The paper 'Financial Analysis of Ocean Paradise Pty Ltd" is a good example of a finance and accounting case study. Peter Burgess who is the owner of Ocean Paradise which is into fishing supplies business is looking towards getting a loan for the business. The bank is using a loan evaluation officer to identify the manner in which the business is performing and whether providing the loan for $250,000 would be beneficial for the business or not. The loan evaluation officer has been entrusted with the job of evaluating the financial statement through the calculation of financial ratios so that the financial efficiency and the safety of funds can be evaluated (Micro Strategy, 2011).

Proper evaluation of the financial statement will help the loan officer to evaluate the financial statement and help to forecast the future estimations in a better way. Purpose of the report: To identify and evaluate the financial statement of Ocean Paradise so that Terra Firma Bank can identify whether providing a loan for $250,000 to Ocean Paradise will be beneficial for the bank and the safety aspect in consideration to the loan along with the nature of risk involved. Scope: The report looks to analyze various financial aspect of Ocean Paradise but is limited to the fact that it doesn’ t consider the inflation level, uses historical data and doesn’ t consider the changes in the production, technology and change in marketing strategies. Profitability This ratio helps to understand the manner in which Ocean Paradise has been able to generate profits from their daily operations.

This ratio helps to identify the efficiency and is calculated as follows Return on Assets: This ratio helps to understand the profit generated by the use of assets (Friedlob & Schleifer, 2003).

The ratio shows that the return on assets has grown over from 27.5% in 2009 to 37.2% in 2011 highlighting efficiency in the use of assets. The ratio shows that Ocean Paradise has been able to revolve the assets effectively and ensure that they have assets as per the requirements of the business. Even the trend and horizontal analysis support the fact that both assets and profits have shown consistency. Gross & Net Profit Margin: Gross profit ratio throws light on the profits which are earned from the product whereas a net profit shows the bottom line after meeting all the expenses.

The ratio indicates soundness and matches with the industry requirements of 53% and 23% respectively. The efficiency of this ratio multiplies when we look at the trend analysis which shows that despite increasing competition the sales and profits have not dipped much. Price-Earnings ratio: This ratio shows the market price of the share in relation to the earnings (Summers & Smith, 2010). The ratio indicates that the market price is twice the earnings highlighting positive sentiments about the company and the investor feel that the company has scope for growth in the future Dividend Ratio: The ratio indicates consistency and shows that Ocean Paradise has given dividends out of its profit consistently showing the concern for the shareholders and the ability of the business to sustain sound profits over a longer period of times The overall profitability seems sound.

The trend analysis demonstrates the same and Ocean Paradise by ensuring better management will be able to ensure higher prices of the stock.

The profitability analysis shows soundness and makes the company looks like a prospective one to get a loan for $250,000.

Reference

List

Financial Modelling Guide. 2011. Liquidity ratios. Retrieved on December 24, 2011 from http://www.financialmodelingguide.com/financial-ratios/liquidity-ratios/

Friedlob, G. & Schleifer, G, 2003. Essential of Financial Analysis. 2nd Edition, John Wiley & Sons Ltd.

Kennon, J. 2010. Analyzing an income statement: Receivable Turnover, about.com guide, The New York Times Company

Micro Strategy. 2011. Financial Analysis. Retrieved on December 24, 2011 from http://www.microstrategy.com/financial-analysis/

Mehar, A. 2005. Impact of financing on liquidity position of firms. Journal of Applied Financial Economics, 15 (6), pp 425-438

Summers, J. & Smith, B. 2010. Communication skills handbook, 3rd edition, John Wiley & Sons Ltd, Brisbane

Transtutor. 2011 Capital Structure Ratios. Retrieved on December 24, 2011 from http://www.transtutors.com/finance-homework-help/dividend-decisions-and-tools-of-financial-planning/Capital-Structure-Ratios.as

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