The paper "Pampers Health Spa Company" is a great example of a finance and accounting assignment. In order to ascertain the financial position of Pampers Health Spa’ (PHS), it is necessary to carry out a financial analysis as it measures the financial performance of the enterprise in terms of profitability, leverage, and liquidity in its operations. As the management of Pampers Health Spa’ (PHS) undertakes the financial analysis of the company, there is a need to carry out the calculation of the financial ratios (Chadwick, L, 2002). While using the figures indicated in the financial reporting statements, namely the trading profit and loss account and balance sheet it is possible to come up with the profitability, leverage, and liquidity ratios in order to carry out an evaluation of Pampers Health Spa’ (PHS) performance.
Thereafter with the report of the financial analysis evaluation, the management will identify several actions, the company might undertake to improve its results and enhance its profitability levels (Atrill & McLaney, 2011). Since leverage ratios indicate the firm’ s ability to finance its obligation and its capability to generate income that can pay for the debts thus, the company should be able to meet its financial obligations over time (Black, 2009).
Therefore, the use of the debit/ equity ratio by the management of Pampers Health Spa’ (PHS) will assist in understanding the company’ s means of financing its activity. Pampers Health Spa’ s (PHS) debt/ equity ratio for the year 2009 indicates a ratio of 0.06360 is below the recommended level of 1.0, which elaborates its ability to meet its debt obligation, thus, it should maintain a low level of debt/ equity ratio. Profitability ratios are also an essential measure of the level at, which returns arise from investment through the return on assets, profit margin, return on equity ratios of a company.
Through the DuPont decomposition of return on equity ratio, an indication of a declining ratio of - 0.6183 shows how there has been a shortfall as the management of Pampers Health Spa’ (PHS) creates value for its capital investment (Chadwick, L, 2002). On the other hand, the return on assets ratio gives a measure of how the assets are effectively and efficiently utilized in order to produce net profit as a result, the management can enhance the utilization of resources around the company.
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