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Evaluation and Comparison of Ratios - Doc

   

Added on  2021-06-14

6 Pages1194 Words146 Views
Report on Evaluation of RatioRatios comparison and recommendationsSunbay Sales

ContentsExecutive Summary..................................................................................................................................2A.Evaluation and comparison of ratios calculated in Part C...........................................................2I.Profitability Ratios.........................................................................................................................2(a)Return on assets ratio..........................................................................................................2(b)Profit margin ratio..................................................................................................................2II.Efficiency Ratios............................................................................................................................2(a)Assets turnover ratio.............................................................................................................2(b)Times debtors turnover........................................................................................................3III.Liquidity Ratios..........................................................................................................................3(a)Current ratio...........................................................................................................................3(b)Quick ratio..............................................................................................................................3IV.Capital Structure Ratios...........................................................................................................3(a)Debt to equity ratio................................................................................................................3(b)Debt ratio................................................................................................................................3B.Limitation of Ratio Analysis.............................................................................................................3C.Conclusion.....................................................................................................................................4D.Recommendations........................................................................................................................4E.References.........................................................................................................................................5

Executive SummaryThis report is prepared to analyze the financial statements and ratios of Sunbay Sales. Themain contents of the report are evaluation and comparison of the ratios calculated includingdescribing the profitability, asset efficiency, liquidity and capital structure.A.Evaluation and comparison of ratios calculated in Part CFor comparing the financial information, ratios are a great tool. They provide the bird’s eye viewof the major aspects of the business and hence makes the information comparable and helps inanalyzing and taking decisions as per the requirement of stakeholders. The main categories of financial ratios are:I.Profitability RatiosThese categories of ratios are used to evaluate and compare the profit earning capability of thecompany. It not only compares the income but also the expenses and costs. The two types ofratios of this category are ("Profitability Ratios - Calculate Margin, Profits, Return on Equity(ROE)", 2018):(a)Return on assets ratio– This ratio shows the return earned on the assets invested.ROA is calculated by dividing profit with total assets. This ratio helps in determining theprofit generated by the assets employed. For Sunbay Sales, the return on asset is12.20% which means that by investing $100 into assets the company is able to generatethe profit of $12.20.(b)Profit margin ratio – This is a profitability ratio shown in a percentage form. This is themost important ratio and is calculated by dividing the profit earned by the business withsales. For Sunbay Sales, this ratio is 30.80%. it means company is earning a profit of30.80% on its sales.II.Efficiency RatiosFor measuring and comparing the efficiency of the company’s assets and operations theefficiency ratios are used. It helps in determining the effective utilization of business assets andliabilities. The two types of ratios of this category are ("Efficiency Ratios | Example | MyAccounting Course", 2018):(a)Assets turnover ratio– This ratio shows the efficiency and utilization of company’sassets against its sales. It is calculated by dividing the sales with total assets employed.This ratio is expressed in times. For Sunbay Sales, this ratio is 0.40 times which meansthat sales are 0.4 times of assets employed.

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