FNSR2202 Fundamentals of Financial Management

Running Head: Financial Management
FINANCIAL RATIO ANALYSIS
WIZARD INDUSTRIES

Financial Management1
Introduction:
The present report is prepared to analyse the financial performance of Wizard Industries
using the key accounting and financial technique called ratio analysis. The financial ratios in
relation to profitability and efficiency aspects of financial performance of the company are
calculated to assess its financial health from different angles. Use of key profitability ratios is
made to identify whether the business of Wizard industries is generating sufficient profits and
has it utilised its assets and funds of shareholder’s investment in business in such a way that
maximum returns could be offered to the shareholders of the company.
Part 1: Financial Ratios Calculation:
For the purpose of analysis of financial performance of Wizard Industries a comparative
study of financial ratios at both inter-firm as well as intra-firm level has been done. Under the
intra-firm analysis, the financial performance of company in 2015 is compared with that of
2014 in order to evaluate whether the overall financial performance has improved or declined
in 2015. On the other side, the financial performance of company is compared against the
average industry results as a part of inter-firm analysis so as to determine the financial
standing of the company in the industry within which it operates its business.
Profitability
Ratios
2015 2014
Net profit Margin PAT/ Sales
0.07% 5.16%
1100/1605100 95000/1841300
Return on equity Net profit after
tax/Average
shareholder's equity 0.38% 30.97%

Financial Management2
1100/
((252500+321400)*0.
5)
95000/
((321400+292000)*0.
5)
Return on assets EBIT/Average Total
Assets 7.37% 19.71%
66550/
((881900+925200)*0.
5)
172650/
((925400+826100)*.5
0)
Efficiency Ratios
Inventory
Turnover Ratio
COGS/ Average
Inventory Ratio 4.29 4.51
1258900/
((256600+330000)*.5
0)
1397400/
((330000+289900)*.5
0)
Receivable
Turnover Ratio
Sales/ Average
Accounts Receivable 4.16 5.59
1605100/
((410800+361800)*.5
0)
1841300/
((361800+297300)*.5
0)
Average
collection period
365/Receivable
Turnover Ratio 87.84 65.33
365/4.16 365/5.59
Part 2: Definition and Analysis of Financial Ratios:
Net profit margin:
Net profit margin is the profitability ratio that measures the quantum of sales revenue
remained after paying off all the business expenses of the year. It the profit that is used to
offer returns to the investors or can be transferred to reserves for its further utilisation in