MANAGERIAL FINANCE ASSIGNMENT

Managerial finance assignment

Managerial finance assignment

Question 1

Financial performance of The Game Group Plc

Entrepreneur or business owner frequently needs to analyze their business and the evaluate the performance of their business, for effective evaluation good grasp and knowledge of financial ratios gives more clear picture of the business as compared with any other tool. Financial ratios provide important information of the business in terms of various categories. For instance it provides the information about the efficiency of assets in generating revenue in terms of return on assets (ROA). There are various types of ratios used to analyze different type of information. Financial ratios posses' equal importance for investors also as these ratios is used by investors to identify favorable investment options. Financial ratios also help in identifying strengths and weakness of the business. Investor or entrepreneur, if frequently analysis the business than he can update himself according the financial condition of the business and its performance over different period of time. Financial ratios are found to be helpful tools in analysis of financial statement and forecasting for business because ratio of financial statements enables owner of the business to define particular objectives and goals and he can easily evaluate performance of the business in pursuing that goals. It is critical to carefully select the financial ratios for the business, because there are number of financial ratios available for business and industry specific. Therefore, right selection of ratios can bring fruitful results.

Short term liquidity

(Sinha, 2009, pp. 9-15) Focuses on the importance of short term liquidity, because firm required converting it assets into cash on to meet its due commitments. Meeting commitments on time leads firms to enjoy discounts and profitable advantages. Vice versa, if company unable to meet its commitments creates difficulties in getting profitable opportunities.

Current ratios

Current ratios define the company position in covering current liabilities with current assets. There are some advantages related to current ratios. First, it gives a clear picture of firm's current position; the greater ratio indicates firm's stability. Second, it provides a degree of safety against losses; larger ratio means low risk and high safety. Third, it gives the volume of current asset against uncertainty. Despite advantages there are limitations of current ratios, they could not predict future conditions in term of inflows and outflows, it predicts firm condition at a particular time and cannot establish the relation in reserve liquid resources for future. Current ratio is as current assets divided by current liabilities. (Stickney et al., 2009, pp. 55-60) Discussed that decreased ratio which is near to 1 describes most of the current assets are covering current liabilities but ratio less than 1 describes the failing condition. Firm's current ratio near to 0 is safer than the firm's having ration near to 1. It can be formulated as follows:

Current ratio of the Game Group Plc is as follows:

2011

2010

2009

Current Assets

349,696

310,489

377,044

Current liabilities

320,069

289,848

402,448

Current Ratio

1.09

1.07

0.94

It is found that the current ratio of the company is on safe side and it is increasing ...