ACCOUNTING

Accounting Analysis

[Name of the Institute]

Accounting Analysis

Question # 1.

A.

Profitability Ratios

Formula

Gross Profit Margin

Gross Income/Sales

Net Profit Margin

Net Income/Sales

Return on Equity

Net income/Equity

Return on Assets

Net Income/Assets

Asset turn Over

Sales/Total Assets

Liquidity Ratios

Current Ratio

Current Asset/ Current Liabilities

Quick Ratio

Current Asset-Current Liabilities/Current Liabilities

Debt/Equity

Total debt/Total equity

Efficiency Ratio

Cash Turn Over

Sales/Cash

Inventory Turn Over

Cost of Goods Sold/Inventory

Fixed Asset Turn Over

Sales/Fixed assets

B.

Profitability Ratios

2012

2013

Gross Profit Margin

0.45

0.47

Net Profit Margin

0.170222

0.074082

Return on Equity

0.130316

0.061756

Return on Assets

0.108946

0.039969

Asset turn Over

0.640023

0.539529

Liquidity Ratios

Current Ratio

2.354108

1.924214

Quick Ratio

1.354108

1

Debt/Equity

0.196155

0.455216

Efficiency Ratio

Cash Turn Over

56.96203

0

Inventory Turn Over

7.132565

4.001541

Fixed Asset Turn Over

0.725806

0.609377

C.

Gross profit margin for the company is improving from .45 to 0.47 that is immediately affecting the profitability of the firm.

Net profit margin covers the money that is made by company for every single sale. Net profit margin is decreasing.

Return on equity is decreasing which is not good for the stake holders of the company that means that return on investment by the share holders is declining which is not a good sign for other investors to invest in the business.

Return on asset is also decreasing which is a sign that shows that competitor has operated efficiently and overall profitability of the company has declined.

Asset turnover has also declined from previous year which shows that the company is not performing well at all and it shows that the company is not utilizing the asset efficiently.

Current ratio is sufficient.

Quick ratio is also sufficient.

Debt to equity ratios has been increased which means company is relying more debt.

Inventory turnover has declined which means it is improved as inventory does not take more time for sale but the fixed asset has been declined which indicates that the company is not utilizing the fixed assets efficiently and effectively.

D.

The company is not utilizing the assets efficiently hence it should utilize their asset carefully and effectively in order to increase the profitability of the company.

The company should pay off its debt in order to minimize the risk and also ...