Financial Stability Analysis Report

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Accounting

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Table of Contents
Introduction................................................................................................................................3
Profitability analysis...................................................................................................................3
Liquidity analysis.......................................................................................................................4
Financial stability analysis.........................................................................................................4
Conclusion..................................................................................................................................5
References..................................................................................................................................7
Appendix....................................................................................................................................8

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Introduction
Financial analysis is required to be performed for the company as by that the position
which is maintained and also the financial performance is evaluated. There is the
consideration of ratio analysis for the same and all the calculations are performed in the
context of Good spirit hospitality limited. In that, the main areas which will be covered
include profitability, liquidity and financial stability. The changes and their reasons will be
reported by which correct decisions can be undertaken.
Profitability analysis
The profits which are made by the company involve various aspects which need to be
taken into account. In this, there is the consideration of various profits that are made such as
the gross profit, operating profit and net profit (Innocent et al., 2013). For this, the gross
profit is ascertained which profit is left after eliminating the change in finished inventory.
The operating profit is the amount that is earned from the operations. The calculation of the
ratios is made and the presentation of them is made below.
Particulars formula 2018 2019
Gross profit margin Gross profit/sales*100 75.61
%
76.25%
operating profit margin Operating profit/sales*100 -1.15% 3.66%
Net profit margin Net profit/sales*101 -1.42% 2.11%
In this, it can be noted that the profitability of the company is improving and there is
an increase in the rate of profit which is maintained. The gross profit of the company is
increasing from 75.61% to 76.25% in 2019 and this is because of the increase in the gross
profit. There were negative profits in 2018 which turned out to be positive in the current year
which is beneficial for the company. The operating profit margin was -1.15% in 2018 and
turned out to be 3.66% in 2019. This is because the operating profit is increased as there is a
reduction in the expenses which are incurred. The profitability of the company is affected by
the expenses which are incurred as if the cost will be high then the profit will be less and vice
versa (Mousa, 2015). The net profit is also converting from negative profitability to positive
profits which are in the interest of the company.