IntroductionBackground: Elite Commercial Furnishings Pty Ltd deals in furniture equipments and looks towards selling furniture through whole sellers in Australia. Jackson is looking towards identifying whether the company can get a loan for future projects thereby wants to understand the financial viability before deciding his actions. For this purpose Ian is looking towards a financial analysis of Elite Commercial Furnishings Pty Ltd so that the future can be predicted. Financial analysis helps a business unit to understand the manner in which it has performed and also helps to “plan, forecast for the future so that the company is able to deliver on the promises”.
(Lee A, Lee C & Lee J, 2009) It helps Ian to identify the strengths and areas of Elite Commercial Furnishings Pty Ltd which will help them grow. Purpose: The purpose is conduct a financial analysis and look at the performance of Elite Commercial Furnishings Pty Ltd. Based on the performance and the changes Jackson is looking to bring in the company suggest Ian whether the loan is beneficial or notScope: The report looks into the financial angle but doesn’t look into inflation, comparing with other organization and neither does it look into developments in the field of marketing, selling, distribution, and production.
ProfitabilityThis aspect helps to understand the manner in which the business has been able to earn profits from their routine business. Comparing it with the previous years and the competitors’ helps to evaluate the shortcomings, and shows area which needs to be improved. (Summers & Smith, 2010) The ratios areTrend Analysis: The profitability shows a growth of 28% compared to the base year 2009 whereas the revenues has grown by 26% highlighting that the business has become efficient and has reduced their expenses but a look from 2010 shows that the performance has dipped and the company has been able to earn lower profits.
This is also substantiated with the trend analysis of the financial statement which shows improvement in performance. Gross & Net Profit Margins: “Gross profit is the profit that is directly attributable to the product and is calculated after meeting the direct expenses (Gross profit Margin, 2010). A high gross profit of 35% throughout out the three years indicates soundness in manufacturing process.
It also shows that the strategies are well managed. “Net Profit is the profit that is calculated after meeting both the direct and indirect expenses. (Net Profit margin, 2010) It is seen that the net profit has decreased in both the year after 2009 suggesting that the indirect cost has grown. A comparison with the gross profit margin shows a huge dip signifying the fact that the company incurs a lot of indirect expenses which needs to be looked into and reduced. Price Earnings Ratio: The ratio indicates that Elite Commercial Furnishings Pty Ltd has sound P/E ratio.
The value of the share is more than 8 times its earnings. It highlights that the market has positive sentiments regarding the performance of the company which has been reflected in the share price of Elite Commercial Furnishings Pty Ltd. (Estrada, 2005)