Performance Analysis of Sparklin Automotive Company
Performance Analysis of Sparklin Automotive Company
Introduction
The analysis of financial performance is crucial as it helps the company in evaluating the financial standing in certain time period which also reflects the future trends of company. In this study, past performance of Sparklin Automotive Company (SAC) is taken into consideration which includes 2010 and 2011, so that the financial position or condition of SAC can be measured. This analysis also guides in improving the profits and the liquidity position of the company so that the immediate needs of the business can be satisfied. For that reason, analysis of the financial ratios is an important aspect of measuring the financial position of Sparklin Automotive Company.
Calculation Of Ratios For Sparklin Automotive Company
Profitability Ratios
2010
2011
Gross Margin %
=
Gross Profit X 100
=
76,250
=
49.2 %
=
68,380
=
40.7 %
Revenue
155,000
168,000
Net Profit Margin %
=
Net Income X 100
=
31,670
=
20.4 %
=
29,485
=
17.6 %
Revenue
155,000
168,000
ROE % (Net)
=
Net Income X 100
=
31,670
=
29.0 %
=
29,485
=
27 %
Stockholders' Equity
109,200
109,200
ROA % (Net)
=
Net Income X 100
=
31,670
=
20 %
=
29,485
=
18.7 %
Total Assets
158,300
157,350
Liquidity Ratios
2010
2011
Current Ratio
=
Current Assets
=
72,300
=
1.5
=
67,350
=
1.4
Current Liabilities
49,000
48,000
Quick Ratio
=
Quick Assets
=
46,940
=
1.0
=
30,990
=
0.6
Current Liabilities
49,000
48,000
Debt Management
2010
2011
Total Debt to Equity
=
Total Debt & Leases
=
49,100
=
0.45
=
48,150
=
0.44
Shareholders' Equity
109200
109,200
Efficiency Ratios
2010
2011
Receivables Turnover
=
Revenue
=
155,000
=
18.2
=
168,000
=
18.2
Accounts Receivable
8,500
9,250
Inventory Turnover
=
Cost of Goods Sold
=
78,750
=
3.1
=
99,620
=
2.7
Inventory
25360
36360
Analysis of Sparklin Automotive Company
Profitability Ratios
The financial performance of Sparklin Automotive Company in terms of profitability is not adequate as the past trends of the SAC that is from 2010 to 2011 indicates that the profits of company is decreased which can verified from the assessment of the profitability ratios that include gross profit margin, net profit margin, return on equity and return on assets. In this context, the gross profit margin of SAC is decreased from 49.2% to 40.7% during the period under consideration, which is not a positive indication for the company; similarly, the net profit margin is also decreased. Furthermore, the return on assets of Sparklin Automotive Company from 2010 to 2011 is indicating that structure of profitability of the SAC is decreased from 20% to 18.7%; which shows that the ineffective management of company in utilizing its assets to making profits. For that reason, the overall performance of the SAC is not encouraging for the investors.
Liquidity Ratios
The liquidity position of the company is reflected through the current ratio and quick ratio, which indicates that it has declined from 2010 to 2011, which reflects that the liquidity structure of the Sparklin Automotive Company is not satisfying. The financial performance of the SAC shows that the current ratio is decreased from 1.5 to 1.4 from 2010 to 2011 respectively; however, ...