# Essays on Group Assignment Assignment

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Part ACurrent ratio Purpose: “To calculate the firm’s ability to pay its short term obligation using short term assets”. (Keith, 2009)RatiosFormula200720082009Current RatioCurrent Assets/ Current Liabilities2730/1893=1.442890/1732=1.672915/1843=1.58Quick RatioPurpose: “To calculate the firm’s ability to use its near cash or quick assets to retire its current liabilities”. (Keith, 2009)RatiosFormula200720082009Quick Ratio(Current Asset - Inventories) / Current Liabilities (2730-1470) / 1893 =-66(2890-1360) /1732=. 88(2915-1260) /1843=. 9Asset Turnover RatioPurpose: “To calculate how effectively the firm has been able to use its assets”. (Martin, 2008)RatiosFormula200720082009Asset Turnover RatioNet Sales/ Total asset10790/11200=. 9611570/11930=. 9712680/13130=. 97Receivable Turnover in daysPurpose: “It measures the firm’s ability to rotate its debtors and measure the liquidity of the assets”.

(Martin, 2008)RatiosFormula200720082009Receivable Turnover in days360/(Credit sales/average accounts receivable)360/(7255/(660+690/2)= 33.5360/(7110/(710+690/2)=35.47360/(7085/720+710/2)=39.4Inventory Turnover in daysPurpose: “To calculate the number of times in an average an inventory is sold in a year”. (Martin, 2008)RatiosFormula200720082009Inventory Turnover in days365/(Cost of goods sold/ average inventory365/(5995/(1510+1470/2)=90.8365/(6360/(1360+1470/2)=81.1365/(6980/(1260+1360/2)=68.5Debt ratioPurpose: “To calculate how much a firm relies on debt to finance its assets”. (Kennon, 2009)RatiosFormula200720082009Debt Ratiototal debt/ total assets5293/11200=. 475282/11930=. 445643/13130=. 43Equity RatioPurpose: “To calculate how much a firm relies on equity or shareholders fund to finance its assets”.

(Kennon, 2009)RatiosFormula200720082009Equity RatioTotal equity/ total assets6647/11200=. 536648/11930=. 567487/13130=. 57Debt Equity RatioPurpose: “To calculate the extent to which a business relies in external financing”. (Kennon, 2009)RatiosFormula200720082009Debt to Equity RatioDebt / Equity5293/6647=. 805282/6648 = . 805643/7487 = . 75Interest Coverage RatioPurpose: “to calculate the firm’s ability to pay interest on outstanding debt”. (Little, 2009)RatiosFormula200720082009Interest Coverage RatioOperating Profit before tax and interest/ Interest2320/408= 5.692385/426= 5.62405/456= 5.27Return on AssetsPurpose: “To calculate how effectively the firm has able to generate profits with the assets”. (Little, 2009)RatiosFormula200720082009Return on Assets(Net Income / Total asset) * 100(1604/11200) *100= 14.32%(1670/11930)*100= 13.99%(1684/13130)*100= 12.83%Return on EquityPurpose: “To calculate the firm’s ability to generate additional income by reisvesting the earnings”.

(Little, 2009)RatiosFormula200720082009Return on EquityNet Income/ Shareholder Equity1604/6674=. 241670/6648=. 251684/7487=. 23Gross Profit RatioPurpose: “To calculate the firms manufacturing and distribution efficiency during the production process”. (Kennon, 2009)RatiosFormula200720082009Gross Profit RatioGross Profit/ Net sales4795/10790=. 445210/11570=. 455700/12680=. 45Expense RatioPurpose: “To calculate the percentage of money a firm spends on expenses out of the total sales generated”. (Little, 2009)RatiosFormula200720082009Expense RatioExpense/ Net Sales2475/10790=. 232825/11570=. 243295/12680=. 26Net Profit RatioPurpose: “To calculate the firm’s ability to generate profits on each dollar of sales”. (Little, 2009)RatiosFormula200720082009Net Profit RatioNet Profit/ Net Sales1604/10790=. 151310/11570=. 111684/12680=. 13Earnings per SharePurpose: “To compare the performance of one company with other assuming that both company performs in the same industry so that investors can choose the company to invest in”.

(Little, 2009)RatiosFormula200720082009Earnings per ShareNet Earnings/ Outstanding Shares1217/2500=. 491398/2500=. 561017/3500=. 29Part BFinancial statements are prepared by organizations. A look at the financial statements reveals little. An analysis of ratios helps to predict future. It gauges the performance. It determines the direction. It helps to prepare strategies. It helps to compare companies. This facilitates comparison.

It also helps to compare with the industry. Some of the measures and growth are shown belowLiquidity Ratios“It determines the ability to pay its short term debt”. (Wild & Subramaniyam, 2008)Current ratio: The current ratio is 1.58 for 2009. It indicates good cash flow. It matches to the industry standard set which is 1.65. It shows the “firm is able to meet its commitment easily and short term creditors can ensure safety of fund”. (Kennedy, Ralph, Stewart & McMullen, 2008) This has been achieved due to good maintenance of inventory.

Even receivable has been managed well. They have been rolled well. This is because of proper strategy. The company has good focus. It can still improve. This can be done by rolling receivable more. Quick Ratio: The quick ratio is 0.9. It is a worrying factor. The “firm is not able to match its current debt level when inventory is removed”. (Wild & Subramaniyam, 2008) It is also below industry standard of 1.2. It should have been at least 1. This would have made it at least sufficient. .

“In the event that short-term obligations need to be paid off immediately, then the company would not be able to meet it”. (Martin & Fernando, 2002) This is because the company has lot of inventory. It has not been managed well. The turnover for stock is slow. It is because of poor stock maintenance. To improve it company needs to reduce stock. It needs to improve the turnover in it. It needs to have stock according to levels and reduce unnecessary investments in it.

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