Accounting Essentials For Decision Making

Running head: ACCOUNTING ESSENTIALS FOR DECISION MAKING
Accounting Essentials for Decision Making
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ACCOUNTING ESSENTIALS FOR DECISION MAKING1
Table of Contents
Introduction:...............................................................................................................................2
Evaluation of Performance of the Company:.............................................................................2
Profitability Ratios:....................................................................................................................2
Gross Profit Ratio:..................................................................................................................2
Net profit Ratio:.....................................................................................................................3
Return on Equity:...................................................................................................................3
Return on Assets:...................................................................................................................4
Asset efficiency ratio:................................................................................................................5
Asset Turnover Ratio:............................................................................................................5
Inventory Turnover Ratio:......................................................................................................5
Days Sales in Inventory:........................................................................................................6
Accounts Receivable Turnover Ratio:...................................................................................6
Liquidity Ratios:.........................................................................................................................7
Current Ratio:.........................................................................................................................7
Quick Ratio:...........................................................................................................................8
Cash Ratio:.............................................................................................................................8
Financial Gearing Ratio:............................................................................................................9
Times Interest Earned Ratio:..................................................................................................9
Debt to Equity Ratio:...........................................................................................................10
Debt Ratio:...........................................................................................................................10

ACCOUNTING ESSENTIALS FOR DECISION MAKING2
Equity Ratio:........................................................................................................................10
Investment Ratios:....................................................................................................................11
Price Earnings P/E:..............................................................................................................11
Earnings per share:...............................................................................................................12
Dividend Pay-out Ratio:.......................................................................................................12
Dividend Yield Ratio:..........................................................................................................12
Recommendations:...................................................................................................................13
Conclusion:..............................................................................................................................14
References:...............................................................................................................................15

ACCOUNTING ESSENTIALS FOR DECISION MAKING3
Introduction:
Ratio analysis can be defined as the quantitative process of obtaining an insight in the
liquidity position, operational effectiveness and profitability by examining its financial
statements. Investors normally make use of ratio analysis to examine the financial health of
the organization by scrutinizing past and present financial statements (No 2018). The current
report is based on evaluating the financial performance Australian Vintage Limited for the
year 2019.
Australian Vintage Limited is one of the world’s leading international wine producing
company one of the largest wine producers in Australia. The company is at the fore front in
Australian wine industry with approximately 7% of the yearly production in Australia
(Australian Vintage Limited 2020). Diversity in wine producing methods and regionality
enables wine producing team to be the leader in innovation and in the formation of wide
range of wine styles as well as varieties.
Evaluation of Performance of the Company:
Profitability Ratios:
The profitability ratios are useful in comparing the income statement accounts and
categories to demonstrate an organization’s ability to produce profits from its operations
(Schroeder, Clark and Cathey 2019). This ratio emphasizes on an organization’s return on
investment and other assets.
Gross Profit Ratio:
The gross profit ratio measures the amount of profit a company produces following
the deduction of its cost of revenues (Henderson et al. 2015). As evident the gross profit of
AVL in 2018 stood 27% while in 2019 it increased marginally to 28%. The ratio makes sense