FINANCIAL RESOURCE MANAGEMENT

Financial Resource Management

Financial Resource Management

Ratio analysis possess a very important role in determining the past, present and future outlook of the company. Ratio analysis is the most extensively used form of financial analysis. In this section, ratio analysis is aimed at characterizing the firm in a few basic dimensions considered fundamental to assess the financial health of the company We will compare the ratios of 2008, 2009 and 2010 in order to determine the financial health of the given company's data.

Profitability Ratios

Profitability ratios are the projection of how successfully the firm is managing its assets and debts. Actually, profitability ratios measure the ability of the firm to generate earnings or how successfully the firm has generated earnings over a period of time. Profitability ratios are the indicators of the success or failure of the firms' activities.

ROA = Net Income + Interest Expenses/Total Assets

ROA 2008 = 49%

ROA 2009= 41%

ROA 2010= 29%

The return on assets ratio shows that how effectively the assets of company are working to generate profit. According to the situation of the above calculated figures, we can say that the return on assets has decreased. This is a negative sign for the company as its earnings are decreasing in accordance with the assets.

ROE = Net Income + Interest / Common Equity

ROE 2008 = 0%

ROE 2009 = 0%

ROE 2010 = 184%

Return on equity ratio is a comparison of the amount of earnings and the shareholders' equity. This ratio shows the investors that how much the company has earned in contrast to the amount of shareholder' equity. The trend in the return on equity is neutral. This means that the earnings are consistent in comparison to the shareholders' equity. Sales Margin = (Sales - Operating Expenses) / Sales

Sales Margin 2008 = 10%

Sales Margin 2009 = 9%

Sales Margin 2010 = 8%

Liquidity Ratios

Liquidity ratios determine the firms' ability to pay back her debt in time. This is a major influencing factor in the performance of any firm. The basic premise of the liquidity ratios is to determine the liquidity of the firm. In this section, we will focus on the current ratio only as it is the main determinant of a firms' liquidity.

Current Ratio = current assets / current liabilities

CR 2008 = .28

CR 2009 = .54

CR 2010 = .99

From the above figures, it is clear that the trend in the current ratio is decreasing which means that the company Current ratio is below 1 which is an alarming situation that the company might fall short of resources to cover its debt.

Leverage Capital Structure Ratios

Leverage capital ratios compare the use of the equity and the debt in the firm. As opposite to the current ratios which measure the ability of the firm to meet its current commitments, these ratios measure the ability of a firm to meet its long term commitment.

Leverage of long term debt = Long term debt / shareholders' equity

Leverage of long term debt 2008 = 1

Leverage of long term debt 2009 = 1

Leverage of long ...