FINANCIAL ANALYSIS

Financial Analysis



Financial Analysis

a.

Ratios indicate the performance of the company. The three ratios are liquidity, profitability and debt ratio. The liquidity of a firm refers to the ability of a firm to make sure that the firm fulfils all its obligations, and manages to pay all its dues well on time, when due (Gibson, 2010). The operational efficiency of a business can be defined as the ability of the management of the company to utilize the assets of the company to gain the optimal amount of benefit for the company. The Debt Ratio measures the intensity of all the debt of the company in relation to its funds, measures the percentage of total funds provided by creditors (Brigham, 2010). This is the downside of financial leverage - It increases the financial risk. As these ratios are based on the statement of financial position, they represent only a 'snapshot' of the financial stability of the business, taken at one point in time. These ratios can be manipulated by referring payments or delaying purchases until the following period, or by invoicing customers in advance of delivery. Known as 'window dressing', such techniques show an improved solvency position at balance sheet date. As the financial ratios of any company are crucial for predicting the financial position of the companies, on the same time these ratios also have some limitation. Therefore while conducting ratio analysis, one should also consider market factors that may influence the financial position of the company.

b.

2009

2010

2011

Current Ratio

2.333887

1.464906

2.577526

Quick Ratio

0.848837

0.496209

0.926747

The company's current and quick ratios are higher relative to its 2009 current and quick ratios; they have improved from their 2010 levels. Both ratios are below the industry average, however. The firm's fixed assets turnover was above the industry average. However, if the firm's assets were older than other firms in ...