FINANCIAL MANAGEMENT

Financial Management

Financial Management

Question 1

Profitability Ratios of Conday Ltd

Return on Assets Ratio

=

Net Income

=

225

=

0.093360996

X

100

=

9%

Total Assets

2410

 

 

100

Return on Equity Ratio

=

Net Income

=

225

=

0.211267606

X

100

=

21%

Owners' Equity

1065

 

100

 

100

Gross Margin Ratio

=

Gross Profit

=

980

=

0.376923077

X

100

=

38%

Total Sales

2600

Efficiency Ratios of Conday Ltd

Assets to Sales Ratio

=

Total Assets

=

2410

=

93%

Net Sales

2600

Trade Payable to Sales Ratio

=

Trade Payable

=

665

=

26%

Net Sales

2600

Days to Sales Inventory

=

Inventory

X

365

=

600

X

365

=

135 days

Cost of Goods sold

1620

Financial performance

As it is known that the most important factors in the well being of a business, is to see how 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 efficiency ratios of Conday Ltd, which are the, most important and reliable guides. In addition, various past studies states that we decide to calculate profitability and efficiency ratios in order to see how efficiently the company like Conday Ltd is operating its activities.

The profitability of Conday Ltd is showing that Return on Assets is 9 % which is reflecting that the company assets are contributing towards the profit of the company. Furthermore, the return on equity of the company is contributing 21 % to the net profit which means that the major part of the company's profit based on the equity rater then the assets. In addition to this, the gross profit margin demonstrates the proportion of gross profit in the sales business. The return on equity of Conday Ltd allows defining the efficiency of capital invested owners of the enterprise. Usually this figure compared with possible alternative investment in other securities. It shows how much currency net profits earned embedded owners of the company.

Moreover, the gross profit margin of the Conday Ltd is showing that the company is making 38 % profit on sales which also include all the operating expenses as well as the taxes. This 38 % profit is also reflecting how much the company has earned with incurring the cost of goods sold.

Besides it, the efficiency ratios of Conday Ltd that include Assets to Sales Ratio, Trade Payable to Sales Ratio, Days to Sales Inventory shows how the much the company has been efficient in utilizing its assets etc. The assets to sales ratio of the company are 93 %, which means that, the company has been highly efficient in utilizing its assets for the sales of its product. This also reflects that the company may have utilized the assets in the advertising and marketing activities for increasing sales.

Significant issue

Conday Ltd is inefficient in coverting its inventory into sales very quickly. It takes 135 days cycle its inventory, which causes the blockage of resource for long time. Therefore, the company will be unable to generate more profits. So, company should look into its inventory managemeny and make this function efficient with the help of marketing and sales department.

Limitations

The analysis that has been done may not provide the actual position of the company as ...