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Analysis of Financial Performance and Solvency Ratios

   

Added on  2019-11-08

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AUDITING
Analysis of Financial Performance and Solvency Ratios_1

Answere AA1: Horizontal analysis of income statement and balance sheet.COMPARITIVE INCOME STATEMENTINCREASE/DECREASEPARTICULARS20162015AMOUNTPERCENTAGERevenue92584108923-16339 -15.00 Cost of goods sold8610398031-11928 -12.17 GROSS PROFIT648110892-4411 -40.50 Depreciation200020000 - Amortisation 7507500 - Interest expense15001800-300 -16.67 Other expense185018500 - PROFIT BEFORE TAX3814492-4111 -91.52 Tax1491752-1603 -91.50 PROFIT AFTER TAX2322740-2508 -91.53 COMPARITIVE BALANCE SHEETPARTICULARSINCREASE/DECREASE20162015AMOUNTPERENTAGEASSETCurrent assets656625513010532 19.10 Investments87870 - Plant2051522179-1664 -7.50 Intangibles13,16013852-692 -5.00 Others1,11511150 - Total asset1,00,539923638176 8.85 LIABILITIESCurrent liabilities32334277344600 16.59 Noncurrent liabilities799046463344 71.98 Total liabilities40324323807944 24.53 SHAREHOLDERS EQUITYShare capital26202262020 - Reserves11187111870 - Retained earning2282622594232 1.03 Total shareholders’ equity6021559983232 0.39 Note: All the amounts are in thousands.
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A2:1.LIQUIDITY RATIO1. Current ratio2013201420152016Current asset42102481165513065662Current liability26039230182773432334Current ratio 1.62 2.09 1.99 2.03 2. Quick ratio2013201420152016Current asset42012481165513065662Less: Inventories19784227522616431397Current liabilities26039230182773432334Quick ratio 0.85 1.10 1.04 1.06 The liquidity ratio is the calculated in order to determine the ability of the company to pay offthe short term debts of the company (Piper, 2015). The current ratio is calculated to see thatwhether the company is able to pay off the current liabilities of the company using the currentassets. The most favourable current ratio is considered to be 2. Here, it can be observed thatthe current ratio is expected to be the higher in the year 2016 which is a good sign. Thecompany’s current ratio was the best in 2014 and in 2015 there was a decline (Izhar &Hontoir, 2001). Since, the 2016 figures are estimated we can say if the estimations are correctthen the current ratio is very good.The quick ratio is another type of liquidity ratio but in this it excludes inventories. As weknow, that inventories do not fetch us the cash instantly. So, many times it is excluded fromthe aspect of current assets. The trend of quick ratio is also similar to that of current ratio.ACTIVITY RATIO1. Total asset turnoverratio2013201420152016Sales11250011587510892392584Total asset845748787792363100539Total asset turnoverratio 1.33 1.32 1.18 0.92 2. Inventory turnoverratio2013201420152016Cost of goods sold90000984949803186103Average inventory212682445828780.5Inventory turnoverratio 4.63 4.01 2.99
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