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Assignment On Accounting for Managers

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Added on  2020-04-01

Assignment On Accounting for Managers

   Added on 2020-04-01

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Assignment On Accounting for Managers_1
Answer 1.Financial ratios are calculated to analyse the financial performance and financial position ofthe company for a given period of time. There are basically four types of financial ratios-liquidity ratios, profitability ratios, efficiency ratio and solvency ratios (Loughran, 2011). The following calculation shows the financial performance and position for consecutive threeyears:1.Liquidity ratiosCurrent ratio Particulars201420152016Current asset 69,000 77,000 87,000 Current liabilities 41,000 42,000 34,000 Current ratio 1.68 1.83 2.56 Current ratio is a kind of liquidity ratio to check whether the company has the ability topay its short term liabilities using its current assets (Harrison, Horngren & Thomas, n.d.).It is always considered favourable when the current ratio is equal to one or greater to one.A current ratio of 1 indicates that the current asset is equal to current liabilities whereasthe current ratio greater to one is an indication that the current asset of the company ismore than its current liabilities. The current ratio is increasing over the years andtherefore it is considered to be good. It was observed that the current ratio in 2014 was1.68 whereas in the year 2016 it is 2.56 which shows a stronger financial position of thecompany (Libby, Libby & Hodge, 2012).Quick ratioParticulars201420152016Current asset 69,000 77,000 87,000 Inventories 41,000 44,000 49,000 Current liabilities 41,000 42,000 34,000 Quick ratio 0.68 0.79 1.12 To know more about the liquidity position of the company, quick ratio is calculated. It isconsidered more appropriate because inventories are excluded from current asset as itcannot be converted into cash in a very short time. Quick ratio also follows the rule of
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higher the better, it has also increased over the years. Overall we can comment that theliquidity position of the company is quite good (Spiceland, Thomas & Herrmann, 2010).2.Profitability ratio.Operating profit marginParticulars201420152016Operating profit 20,000 11,000 3,500 Sales 2,00,000 1,80,000 1,65,000 Operating profit marginratio10%6%2%The main motive of every company is to earn profits. If the company’s financialperformance is not good it is expected that it will not survive in the long run. Therefore,in order to see the expected survival of the company operating margin ratio is calculated.It has been seen that the operating profit margin is falling over the years which is adverse.Therefore, we can conclude that there is a decline in the financial performance of thecompany (Kimmel, Weygandt & Kieso, 2012).3.Efficiency ratio. The most important financial ratio that helps to analyse the financial position of thecompany is called efficiency ratio. Efficiency is based on the assets and liabilities of thecompany which reflects a true picture of financial position of the company. The data used inthe calculation of efficiency ratio is usually taken from the balance sheet of the company.The few efficiency ratios that are calculated by me are inventory turnover ratio, total assetturnover ratio, fixed asset turnover ratio, return on asset and return on equity ratio(Weygandt, Kimmel & Kieso, n.d.).Inventory turnover ratioParticulars201420152016Sales 2,00,000 1,80,000 1,65,000 Inventories 41,000 44,000 49,000 Inventory turnoverratio 4.88 4.09 3.37 Total asset turnover ratioParticulars201420152016Sales 2,00,000 1,80,000 1,65,000
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