The paper "Analysis of the Financial Ratios" is a great example of finance and accounting coursework. The return on the capital employed ratio is used to analyze the performance of the firm in terms of the profits received against the capital input altogether. It is a ratio that determines the approximate returns of assets deployed by the shareholders of the firm as a whole. In this case, Dixon as a company is perceived to be deploying so much capital in order to make profits, it is straining so much on consuming its working capital thus minimizing on its working capital base altogether.
The return on capital employed is diminishing as financial years goes (Saleemi 2005). The calculated current ratio depicts the fact that the Company utilizes most of its assets while meeting its financial obligations altogether. The significant change of the ratios depicts the fact that as financial years progresses the Company continues to use most of its assets reserves to clear financial obligations it owes its creditors altogether. Profitability ratios like gross profit margin depict the fact that the Company is placed in a better position to convert its sales into profits.
In this case, the Company’ s significant decrease in both its net and gross profit margin depicts the fact that its ability and capacity to convert sales into profits is deteriorating at an alarming rate altogether. The Asset Turnover ratio is used to calculate the number of sales that the Company can make while still consuming its reserved assets. In this case, the calculated ratios depict the fact that the Company is using most of its assets in order to make a single sale which depicts losses on the part of the Company’ s operating activities altogether. All in all, the accounting ratios that have been calculated do not depict a favourable trend in that there are significant differences between the 2006-2007 and 2007-2008 periods.
The liquidity capability of the firm is deteriorating greatly as the financial years progresses. These trends are not in any way favourable for the Company if it commences for a long period of time altogether. Economic Profits for the Past Two Years: Economic Profit= (Total Revenue less Total Expenditure) - Opportunity Cost 2009-2010 Period, Total Revenue-Total Expense= (68.6)-(11.3) = (57.3) M 2010-2011 Period, Total Revenue- Total Expense = 37.4-(207.9) = (170.5) M The main accounting drivers for the firm are based upon the accounting concepts.
Therefore there are basically two accounting concepts which Dixon Company decided to implement in the preparation of its financial statements thus minimizing the risks attributed to the recording of profits where there was none. The two accounting concepts are the Prudence concept which postulates that a firm is entitled to record revenues and profits in the balance sheet in the manner that only when they are realized or rather there is a reasonable probability that they will be realized in the end.
But liabilities are realized when and only when they are a clear possibility that there costs value will be incurred at any time altogether.
ReferencesSaleemi, K 2005. Financial Accounting: Financial Ratios, Capital Budgeting, 4th Ed. London, Longhorn Publishers,