Analyzing Company Financial Ratios

The assignment presents the financial analysis of a company focusing on several important financial ratios. These include Return on Assets (ROA), Debt to Equity Ratio, Debt Ratio, and Equity Ratio. The analysis calculates each ratio using provided data and interprets their meaning in the context of the company's performance and financial health. It aims to demonstrate how these ratios can be used to assess a company's efficiency, leverage, and overall financial standing.

FINANCIAL ACCOUNTING

TASK 1
VIOLET CHANS CONSULTANCY PTY LTD
JOURNAL
Date Account Dr Cr
01-Jun Cash 15,000
Capital 15,000
(Being Capital bought in by Violet)
04-Jun Computer 12,000
Creditors for Computer 12,000
(Being computer bought on credit)
05-Jun Cash 500
Consulting Fees 500
(Being Fee Received)
06-Jun Rent 400
Cash 400
(Being Rent paid)
08-Jun Cash 2,000
Capital 2,000
(Being capital introduced)
09-Jun Cash 500
Consulting Fees 500
(Being Fee Received)
10-Jun Furniture 3,400
Creditor for Furniture 3,400
(Being new reception desk made)
11-Jun Salary 1,500
Cash 1,500
(Being salary paid)
15-Jun Telephone 65
Cash 65
(Being telephone expenses paid)
16-Jun Office Cleaning 231
Cash 231

(Being office cleaning expenses paid)
20-Jun Rent 400
Cash 400
(Being rent paid)
23-Jun Cash 250
Consulting Fees 250
(Being fee received)
24-Jun Accounts Receivable 4,800
Consulting Fees 4,800
(Being Invoice raised)
26-Jun Salary 1,500
Cash 1,500
(Being Salary paid)
28-Jun Creditor for Furniture 3,400
Cash 3,400
(Being paid for furniture)
30-Jun Advertising 200
Cash 200
(Being paid for advertising)
30-Jun Depreciation 170
Computer - Accum Dep 170
(Being Depreciation charged)
30-Jun Depreciation 130
Furniture Accum Dep 130
(Being Depreciation charged)

TASK 2:
VIOLET CHANS CONSULTANCY PTY LTD
GENERAL LEDGER
Dr Cash Cr
Date Account Amount Date Account Amount
01-Jun Bal b/d 24,000
06-
Jun Rent 400
01-Jun Capital 15,000
11-
Jun Salary 1,500
05-Jun Consulting Fees 500
15-
Jun Telephone 65
08-Jun Capital 2,000
16-
Jun Office Cleaning 231
09-Jun Consulting Fees 500
20-
Jun Rent 400
23-Jun Consulting Fees 250
26-
Jun Salary 1,500
28-
Jun Creditor for Furniture 3,400
30-
Jun Advertising 200
30-
Jun Bal c/d 34,554
42,250 42,250
Dr Capital Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 47,000
01-
Jun Bal b/d 30,000
01-
Jun Capital 15,000
08-
Jun Capital 2,000
47,000 47,000
Dr Computer Cr
Date Account Amount Date Account Amount
01-Jun Bal b/d 8,000
30-
Jun Bal c/d 20,000
04-Jun Creditors for Computer 12,000
20,000 20,000
Dr Creditor for Computer Cr
Date Account Amount Date Account Amount

30-Jun Bal c/d 12,000
04-
Jun Computer 12,000
12,000 12,000
Dr Consulting Fee Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 37,812
01-
Jun Bal b/d 31,762
05-
Jun Cash 500
09-
Jun Cash 500
23-
Jun Cash 250
24-
Jun Accounts Receivable 4,800
37,812 37,812
Dr Rent Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 5,200
01-
Jun Bal b/d 4,400
06-
Jun Cash 400
20-
Jun Cash 400
5,200 5,200
Dr Furniture Cr
Date Account Amount Date Account Amount
01-Jun Bal b/d 5,000
30-
Jun Bal c/d 8,400
10-Jun Creditor for Furniture 3,400
8,400 8,400
Dr Creditor for Furniture Cr
Date Account Amount Date Account Amount
28-Jun Cash 3,400
10-
Jun Furniture 3,400
3,400 3,400

Dr Wages & Salaries Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 18,000
01-
Jun Bal b/d 15,000
11-
Jun Cash 1,500
26-
Jun Cash 1,500
18,000 18,000
Dr Telephone Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 186
01-
Jun Bal b/d 121
15-
Jun Cash 65
186 186
Dr Office Cleaning Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 2,772
01-
Jun Bal b/d 2,541
16-
Jun Cash 231
2,772 2,772
Dr Accounts Receivable Cr
Date Account Amount Date Account Amount
01-Jun Bal b/d 3,500
30-
Jun Bal c/d 8,300
24-Jun Consulting Fees 4,800
8,300 8,300
Dr Advertising Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 2,400
01-
Jun Bal b/d 2,200
30-
Jun Cash 200
2,400 2,400
Dr Depreciation Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 300
30-
Jun Computer - Accum Dep 170

30-
Jun Furniture Accum Dep 130
300 300
Dr Computer - Accum Dep Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 2,170
01-
Jun Bal b/d 2,000
30-
Jun Depreciation 170
2,170 2,170
Dr Furniture Accum Dep Cr
Date Account Amount Date Account Amount
30-Jun Bal c/d 1,630
01-
Jun Bal b/d 1,500
30-
Jun Depreciation 130
1,630 1,630

TASK 3:
VIOLET CHANS CONSULTANCY PTY LTD
TRIAL BALANCE AS ON 30.06.2017
Particulars
Dr
Amount Cr Amount
Cash 34,554
Accounts Receivable 8,300
Computer - at Cost 20,000
Computer - Accum Dap 2,170
Furniture - At cost 8,400
Furniture Accum Dap 1,630
Accounts Payable 3,000
Capital 47,000
Consulting Fees 37,812
Depreciation 3,500
Telephone 186
Advertising 2,400
Office cleaning 2,772
Wages & Salaries 18,000
Rent 5,200
Creditor for Computer 12,000
Depreciation 300
Total: 1,03,612 1,03,612

TASK 4:
VIOLET CHANS CONSULTANCY PTY LTD
PROFIT & LOSS STATEMENT AS ON 30.06.2017
Particulars Amount Amount
Income
Consulting Fees 37,812
Expenses
Depreciation 3,500
Telephone 186
Advertising 2,400
Office cleaning 2,772
Wages & Salaries 18,000
Rent 5,200
Depreciation 300
Total Expenses 32,358
Net Profit 5,454

TASK 5:
VIOLET CHANS CONSULTANCY PTY LTD
BALANCE SHEET AS ON 30.06.2017
Assets Amount Amount
Cash 34,554
Accounts Receivable 8,300
Total Current Assets 42,854
Computer - at cost 20,000
Computer - Acc Dep -2,170
Furniture - at cost 8,400
Furniture - Acc Dep -1,630
Total Fixed Asset 24,600
Total Asset 67,454
Liabilities
Accounts Payable 3,000
Creditor for Computer 12,000
Total Liabilities 15,000
Net Assets (Total Asset-Total Liabilities) 52,454
Equity
Capital 47,000
Retained Earnings 5,454
Total Equity 52,454

TASK 6
Current Ratio =
Current Assets
=
42,854
= 2.86
Current Liabilities 15,000
Current ratio is a type of liquidity ratio which helps to calculate and analyse the solvency
position of the company. The current ratio of 1.5 or above is considered very healthy for the
company. In the given scenario we see that the current ratio of the company is 2.86 which is
way much higher than 1.5. This depicts that the solvency of the company is in a very healthy
state and that the company is not likely to face any situations of cash shortages in near
future.
Asset Turnover Ratio =
Net Sales
=
37,812
= 0.66
Average Total Assets 57,652
Asset turnover ratio is an efficiency ratio that helps to calculate the ratio or percentage of the
revenue that the company is deploying in its assets. In easier terms we can say that what
percentage of returns is being generated by the assets is calculated with this ratio. In the
given case the ratio is 0.66. This indicates that the company is using 66% of its total asset in
generation of revenue. This indicates scope for growth and expansion for the company as the
assets are under-utilised.
Return on Assets =
Net Income
=
5,454
= 0.08
Total Assets 67,454
Return on assets is also a kind of efficiency ratio that helps us calculate the percentage of
returns being generated by the investments made in assets. In the given case we see that the
return on assets ratio for the company is 0.08 times, this is 8%. This indicated that the net
profit earned by the company is 8% of the investments made in the assets by the company.
This can be used to compare the performance of the company with other companies of the
same sector.
Debt to Equity Ratio =
Total Liabilities
=
15,000
= 0.29
Stock holders Equity 52,454
Debt to equity ratio is the kind of ratio that helps to calculate the financial leverage of the
company. This ratio helps to calculate what part of capital is debt and equity. It calculates
the ratio between the debt and equity. This helps the investors determine what part of the
company’s capital is owned and what a liability is and needs to be paid off. Relatively high
debt equity ratio is not very favourable. The debt equity ratio of the given company is 0.29
times; this is low and indicates that the company is working of self invested funds.

Debt Ratio =
Total Debt/Liabilities
=
15,000
= 0.22
Total Assets 67,454
Debt ratio helps to calculate the percentage of assets which have been purchased using the
debt funds. It is a financial ratio that helps in calculating the company’s leverage. The debt
ratio for the company is 0.22 times. This indicates that the 22 percent of the assets of the
company are invested using the debt funds.
Equity Ratio = Total Equity = 52,454 = 0.78
Total Assets 67,454
Equity ratio helps to calculate the percentage of assets which have been purchased using the
Equity funds. It is a financial ratio that helps in calculating the company’s leverage. The
Equity ratio for the company is 0.78 times. This indicates that the 78 percent of the assets of
the company are invested using the Equity funds.