STRATEGIC MANAGEMENT

Strategic management



Strategic management

Financial ratio analysis

As it is known that the most important factors in the well being of a business, is to see that it operates at a profit and to organize it in order to be able to meet its liabilities at appropriate times. If either of these points is not covered efficiently it could mean that the business might have to be closed down. This is the reason why we choose to calculate profitability and liquidity ratios which are the most important and reliable guides. The financial ratios are classified into ROE, ROA, ROE, EBITDA margin, quick ratio, current ratio, Total Asset turnover and receivables turnover (Vance, 2003, pp. 10).

The return on assets for the company is been increasing monthly as shown in the excel file. In January the return on assets reported to be 32.81% which decreased in February to 1.71%. However, in March the sales of the company boosted to $324,969,828 resulting the ROA to increase to 109.35%. During the entire year the ROA of the company keeps on fluctuating and hits the highest in August (203.62%). In the last year, the return on Assets for the company was reported to be 34.56%.

The return on investments shows the return which the company is achieving through the use of its investments. This is one of the most powerful profitability analyses as it shows the confidence of the company in dealing with its investors. It is noted that the main aim of the organization is to value the share holder's wealth and this ratio (ROI) proves this. The company reports to have high ROI as its ROI in july is 153.39% which further increased 256.25$ in the next month. By the end of the year the ROI was reported to be 480.51%. This immense increase in the ROI is because of extra ordinary sales achieved by the company.

The current ratio of the company indicates the liquidity of the organization. Higher the current ratio means that the company is highly available to meet its short term liabilities and obligations. It is known that when a company has high current ratio, it is more liquid and can convert its assets into cash within small period of time. The current ratio of this company is very high. In July 2011, the company reports its current ratio to be 8.577 which increased to 11.208 and further increased to 14.794 in September 2011. By the end of the year the company had the highest current ratio of 15.386 which results in the company being very liquid.

The total asset turnover ratio measures the sales generated by each dollar of asset associated with the company. In other words it measures the efficiency of the assets being utilized. Higher total asset turnover indicates that the company is performing exceptionally well. In case of this company, the total asset turnover ratio shows a positive and an increasing trend. In July 2011, the company reported its total asset turnover ratio to be ...