Financial project

Financial project

Introduction

Financial statements are used to analyze the performance of the company. Financial statements are used for both internal and external uses. External users include various stakeholders of the business such as suppliers, investors, creditors and other stakeholders of the business. Different financial ratios are used to evaluate the company performance. Ratios such as liquidity ratios, profitability ratios, solvency ratios and capital structure ratios are used to evaluate performance of the company in different areas.

Ratio analysis of XYZ Company

Current ratio

Company uses current ratio to identify that whether the firm is able to meet its short term obligation or not. Current ratio is obtained using current assets by current liabilities. Current ratio of a business having value more than 1 is able to meet its short term obligations easily as their current assets are covering the short term obligations of the firm (Megginson & Smart, 2008). By analyzing XYZ Company below results are obtained:

2002 (A)

2003 (A)

2004 (A)

Current Assets

$ 104,296.00

$ 82,058.00

$ 302,902.00

Current Liabilities

$ 139,017.00

$ 93,975.00

$ 337,033.00

Current Ratio

0.75

0.87

0.90

Current ratio of the company is tend to be increasing that shows company is able to pay its short term obligations easily. In 2002 (A) current ratio of the company was 0.75 and at 2004 (A) it reached 0.90.

Long term solvency ratio

Long term solvency ratio refers to firm ability in meeting its long term obligations. Long term solvency can be calculated by dividing long term assets by long term liability. The higher the value of the long term solvency ratio shows the effectiveness of the firm in meeting its long term obligations (Walton & Aerts, 2006). The long term solvency ratio of XYZ Company is computed below:

2002 (A)

2003 (A)

2004 (A)

Long term Assets

$ 286,974.00

$ 277,805.00

$ 396,102.00

Long term Liabilities

$ 171,229.00

$ 166,004.00

$ 1,904.00

Long term solvency ratio

1.68

1.67

208.04

Long term solvency ratio of the company for year 2002 (A) is find to be good with 1.68 times of long term assets against liability are available. This ratio is increased within these three years which shows that company is improving its long term existence.

Profitability ratio

Business uses profitability ratio for calculating profitability of the company. It evaluates the company's ability to generate profitability of the business (Gitman & McDaniel, 2008). Profitability ratio of the XYZ Company is computed in below mentioned table.

2002 (A)

2003 (A)

2004 (A)

Profit

($ 19,943.00)

($ 72,420.00)

$ 219,112.00

Sales

$ 1,165,065.00

$ 1,244,261.00

$ 2,191,243.00

Profit Ratio

(0.02)

(0.06)

0.10

In 2002 (A) company generated loss of $ 19,943, which was 2% of total sales. Loss increased to $ 72,420 which was 6% of total revenues. That shows that company was ineffective in generating profit and in two years company generated loss. However in 2004 (A) company generated profit of $ 219,112 which was 10% of total revenues, it is good sign for business.

Expense ratio

Program expense ratio splits the expenses of the project into different categories. It is used to evaluate the expense of specific category of total expense (Zietlow ...