Financial Ratio Analysis

Financial Ratio Analysis



Financial Ratio Analysis

Five year financial summary of Robert Wiseman Dairies

Looking at last five years of the company, it can be clearly seen that company is performing well before and after merger, looking at the balance sheet it can be seen that company had increase its assets side in a very positive manner, making it a relation with the revenue & net income it can be clearly seen that company is utilizing its cash flows in a very efficient way.

Talking about revenue, company had roughly increase its revenue for more than 53 % from 2002, Means Company have just double its revenue in just three to four years , which shows company is moving in its right direction. Looking at the gross profit figures, as off course revenue has been increasing, it will also affect the gross profit, the gross profit of the company increases by 65 % from 2002 to 2006.

This also shows that company have no going concern issue right now and company will run for un foreseen able future. But looking on the net income of the company although it had also been increased as compare to previous years but in 2005 the net profit is 21,551, but in 2006 it decreases to 18,450, this is because of increase cost of sales and increase in expenses. But overall company performance is satisfactory.

Now looking at the balance Sheet , as off course Net income of the company have been increase , it will automatically create impact on the balance sheet , so talking generally , company has increases its Fixed assets side by more than 10 % , again its seems like a slow growth but this is supposed to be satisfactory for a public limited company .

Reasons for using Ratios

Mathematically, a ratio is one reason, i.e. the relationship between two numbers. Are a set of indices, the result of relating two accounts of the balance sheet or statement of income. The ratios provide information that can make the right decisions to those interested in the company, whether their owners, bankers, consultants, trainers, government, etc. For example, comparing current assets to current liabilities, we know what the payment capacity of the company and whether it is sufficient to account for the obligations owed ??to third parties. It is Used to determine the magnitude and direction of the changes in the company for a period of time (Ehrhardt, 2008,, 131)..

Liquidity ratios. Evaluate the company's ability to meet its short-term commitments.

Indices of Management or activity. Measure the use of assets and net sales compared to total assets, fixed assets, current assets or items belonging to them.

Credit ratings, debt or leverage. Ratios that relate resources and commitments.

Profitability Ratios. Measure the company's ability to generate wealth (financial and economic performance) (Bodie, 2004,, 459).

General liquidity ratio or current ratio

The overall liquidity ratio obtained by dividing the current assets from current liabilities. Current assets include primarily cash accounts, banks , accounts receivable and letters, ...