Financial Performance Analysis of Barkes Computers

Running head: ACC01
ACC01
Name of the student
Name of the university
Student ID
Author note

1ACC01
Table of Contents
Introduction................................................................................................................................2
Performance analysis of the company........................................................................................2
Conclusion and recommendation...............................................................................................8
References................................................................................................................................10

2ACC01
Introduction
The main objective of the report is to analyse the financial position and financial
performance of Barkes Computers through various financial measures. These measures will
include the various ratio analyses like profitability ratio, liquid ratio and leverage ratio.
Performance of the company for the last 5 years covering the years from 2013 to 2017 will be
analysed through vertical and horizontal analysis of income statement as well as the balance
sheet of the company (Uechi et al., 2015). Based on the ratios and trend analyses the
performance of the company for the last 5 years will be evaluated. Further, on the basis of the
discussion the report will provide the conclusion and recommendation.
Performance analysis of the company
Ratio analysis
Ratio Formula 2017 2016 2015 2014 2013
Gross profit
ratio Gross profit/Revenue 26.65% 32.07% 33.81% 39.64%
60.45
%
Net profit
ratio Net profit/Revenue 11.51% 13.12% 13.52% 15.32%
21.64
%
Return on
equity
Net profit/Owner's
equity 2.30% 1.52% 1.23% 0.92% 0.76%
Return on
assets Net profit /Total assets 0.93% 0.76% 0.63% 0.56% 0.47%
Asset
turnover
Sales/Average total
assets 0.08 0.06 0.05 0.04 0.02
Current ratio
Current assets/current
liabilities 0.44 0.47 0.49 0.51 0.52
Debt to equity
ratio
Total liabilities/Total
equity 1.47 0.99 0.95 0.65 0.63
Ratio analysis is the measure of analysing the financial statement used for obtaining
the quick indication regarding the financial performance in different key areas. Various ratios
considered for analysing the financial statement of Barkes Computers are profitability ratios,

3ACC01
liquid ratio and leverage ratio or solvency ratio (Weygandt, Kimmel & Kieso, 2015). As the
data presented in the financial statement of the company are available readily it assists in
comparing the performance of the company with previous years or with the competitors in
the industry. However, the ratio analysis can be used as the 1st step of analysis as it is based
on the accounting information available through the financial statement of the company and
does not justify the true and fairness of the information provided (Wahlen, Baginski &
Bradshaw, 2014).
Gross profit ratio – it establishes a relationship among the net revenue earned by the
company and the amount left with it after spending the amount towards manufacturing and
selling of the goods or providing the services. This is a profitability ratio and expressed in the
percentage form. The net sales considered here is the total of cash sales as well as credit
sales. It assists in ascertaining the optimum sales price and enhances the efficiencies of the
trading activities. High gross profit ratio indicates that the net sales of the company are high
with consistent cost of the sales. On the other hand, low sales with increasing COGS results
into falling trend of the gross profit (Easton & Sommers, 2018). It can be identified from the
ratio calculation table that the gross profit of the company is in falling trend and it is reduced
from 60.45% to 26.65% over the years from 2013 to 2017.
Net profit ratio – It is the sales percentage left with the company after paying off all the
operating expenses and financial and tax expenses. Net profit does not indicate the cash flows
as the net profits incorporate various non-cash expenses like depreciation and amortization.
However, the major issue associated with net profit margin is it is considered for short term
performance measure as does not reveal any measure for maintaining the profitability over
the long run. It establishes a relationship among the net revenue earned by the company and
the amount left with it after paying taxes, operational and financial expenses. It can be
identified from the ratio calculation table that the net profit of the company is in falling trend