Financial Analysis Management Task

Running Head: FINANCIAL ANALYSIS
0
Financial Statement
Analysis
Nederland Consumer Products Company
(Student Details: )
1/21/2020

FINANCIAL ANALYSIS
1
Answer 4.31
Based on given financial statements including income statement and balance sheet of
Nederland Consumer Products Company for the fiscal year ended September 30, 2014, ratios
have been calculated. The calculated ratios are quick ratio, current ratio, gross margin, debt
ratio, net profit margin, interest coverage, long-term debt to equity ratio, ROE and ROA.
Thus, the aforementioned ratios are presented in the below table:
Ratio calculations Formulas
2014
(Nederland
Co.)
Industry
average
Liquidity analysis Numbers
current ratio current assets 0.77 2.05
current liabilities
quick ratio CA-stock 0.57 0.78
current liabilities
Profitability analysis Percentage %
Net profit margin Net profit 12.61% 12.3%
sales
Gross profit margin
gross profit (sales-
COGS) 51.22% 23.9%
sales
Return on equity Net profit 37.51% 18.8%
total equity
Return on assets Net profit 11.36% 5.3%
Total assets
Solvency ratios times
Debt to equity ratio total debentures 0.73 0.98
total equity
Debt to total assets (debt
ratio) total debentures 0.22 0.23
total assets
Interest coverage ratio EBIT or operating 20.60 5.62

FINANCIAL ANALYSIS
2
profit
interests
While comparing the calculated ratios for Nederland Company with the industry average
ratios, it has been found that the current ratio is 0.77 and 2.05 for the firm and industry
respectively. It is a well aware fact that the higher value of the current ratio denotes that
Nederland is having the good capability to pay its short duration bills. Thus, the industry is
having a decent value of the current ratio which is much higher than the current ratio of the
chosen firm. Since the difference is too high hence Nederland Company needs to increase its
current assets in contrast to current liabilities. Besides, the quick ratio for the firm and
industry is carrying the values of 0.57 and 0.78 respectively. The interpretation of the quick
ratio suggests that it is used to calculate the most liquid assets of an organization. hence,
although Nederland is having decent quick ratio yet the firm needs to increase its current
assets as compared to stock so that quick ratio can be enhanced to fulfil the gap between the
industry and the firm’s quick ratio (ConnectAmericas, 2020).
Now switching to the gross margin value, both the firm and industry are having a gross
margin of 51.22% and 23.9% respectively. Here, the calculation of gross profit produced per
dollar of total sales has been done so that profitability can be assessed. It is clear that
Nederland is having very high gross profit margin as compared to the whole industry’s
average gross profit margin. Thus, it can be said that the firm is highly profitable within the
whole industry. In addition, the net profit margin of the firm and industry has been noted as
12.61% and 12.3% respectively. In this context, this ratio measures the management’s
capability to produce sales. As we know, the net profit margin is the measure of operating
efficiency of any firm which is almost equal for the firm and industry. Thus, the firm is
having similar as well as high operating efficiency as of the entire industry which is
appreciable.
On the other hand, the solvency ratios have been calculated for the firm and the first ratio
calculated is debt to equity ratio as 0.73 and 0.98 for the firm and industry respectively. This
ratio has measured the total amount of debt per dollar of equity for the firm and industry as
well. Thus, it is showing that Nederland Company is in a low-risk position as the ratio is less
than 1. Moreover, in terms of risk, the firm is in a better position than the whole industry. The
debt ratio is calculated as 0.22 and 0.23 for the firm and industry respectively which is almost