Financial Ratio Analysis and Traditional vs Alternative Budgetary Systems

FINANCE

Table of Contents
Part 1..........................................................................................................................................3
Financial ratio analysis...........................................................................................................3
PART 2.......................................................................................................................................5
Traditional and alternative budgetary systems.......................................................................8
Recommendations..................................................................................................................9
REFERENCES.........................................................................................................................10
Part 1
Financial ratio analysis
Gross profit margin:

Gross profit / sales * 100
= 1540 / 20510 * 100
= 7.51%
The ratio indicates that the business entity has gained a trading profit of 7.51%. This
demonstrate that the organisation has achieved a better gross profit margin as compare to the
earlier financial year in which the company could obtain the profit margin of 5.6%. This can
certainly demonstrate that the organisation could gain a better return against making the sales
trade in the business (Kamau, Rotich and Anyango, 2017). The earlier ratio was less this
certainly demonstrates that the company could control its cost of goods sold that could also
become the reason behind the increased gross profit margin of the business entity. The
increased sales of company have also become the key reason of achieving the better gross
profit margin of the organisation. This is a positive sign of the business entity as it gained
increased gross profit margins as compare to the earlier financial year.
Operating profit margin:
Operating profit / sales * 100
= 650 / 20510 * 100
= 3.17%
The above mentioned profit margin demonstrates the fact that the business
organisation has gained a net profit margin of 3.17% in the financial year 2019. This is a
profit margin that demonstrates that the organisation has gained more effective operating
profit as compare to the earlier financial year. This is important for the organization to sustain
a proper operating profit ratio that can favour the better results and outcomes against
delivering the business operations of the company.
Current ratio:
Current assets / current liability
= 1570 / 2920
= .54

The current ratio of the company could decrease from .6 to .54. The sudden deduction
under the current ratio of company is due to the fact that current liabilities of company
become more aggressive in comparison to the current assets part of the business entity. The
role of current ratio is significant in process to manage the liquidity situation of organisation.
The liquidity situation is an important and essential element part of the business operations
deliver by the organisation. This is important for the business entity to formulate and develop
balance between the current assets and current liabilities of the business entity. (Hijal-
Moghrabi, 2019) The difference between 2019 figure of current ration and the 2019 figure of
current ratio is not major. This can certainly indicate that company did not achieve a major
difference between the current ratio of both the financial years.
Quick ratio:
Current asset – Inventory / current liability
= 1570 – 850 / 2920
= .25
The quick ratio identified for the financial year 2019 is .25. The same ratio for the
financial year 2018 was .23. This can predict that the ratio become stronger in the financial
year 2019 as compare to the year 2018. This certainly demonstrates that the business entity
has favoured more effectively to its liquidity situation of the business entity. The quick ratio
is very effective in nature in respect to the liquidity situation of the organisation.
Inventory holding period:
Inventory / cost of sale * 365
= 850 / 18970 * 365
= 16.35 days
Inventory holding period of the company is reported as 16.35 days. The earlier period
is 22 days. This is certainly depicted the fact that company is capable enough to stock the
inventory for fewer time period. This certainly indicates that the business entity has
established a better control in its inventory management system. The inventory holding
period of company is a sole indicator of how long the business entity kept its inventory in the
stock of company (Criss and et.al., 2019). The differences are clear and project the better