Financial Ratio Analysis of a Company

This assignment presents a detailed financial ratio analysis of an unspecified company. The analysis includes calculations for key ratios such as the current ratio, assets turnover ratio, return on assets, debt-to-equity ratio, debt ratio, and equity ratio. The analysis concludes that the company has good financial health but suggests increasing the debt portion for optimal resource utilization.

Task – 1 Complete all journal entries required for the month of June.
Violet Chan's Consultancy Pty Ltd
Journal Entries for the month of June, 2016
Date Account Dr Cr
01-Jun-16 Cash 15,000
Capital 15,000
(Being capital introduced)
04-Jun-16 Computer - at cost 1,200
Accounts Payable 1,200
(Being computer purchased)
05-Jun-16 Cash 500
Consulting Fees 500
(Being cash received for services
rendered)
06-Jun-16 Rent 400
Cash 400
(Being office rent paid)
08-Jun-16 Cash 2,000
Capital 2,000
(Being capital introduced)
09-Jun-16 Accounts Receivable 500
Consulting Fees 500
(Being amount billed)
10-Jun-16 Furniture - at cost 3,400
Accounts Payable 3,400
(Being furniture purchased)
11-Jun-16 Wages & Salaries 1,500
Cash 1,500
(Being salary paid)
15-Jun-16 Telephone 65
Cash 65
(Being telephone bill paid)
16-Jun-16 Office cleaning 231
Cash 231
(Being office cleaning bill paid)

20-Jun-16 Rent 400
Cash 400
(Being office rent paid)
23-Jun-16 Cash 250
Consulting Fees 250
(Being amount received from debtors)
24-Jun-16 Accounts Receivable 4,800
Consulting Fees 4,800
(Being amount billed)
26-Jun-16 Wages & Salaries 1,500
Cash 1,500
(Being salary paid)
28-Jun-16 Accounts payable 3,400
Cash 3,400
(Being amount paid for furniture
purchased)
30-Jun-16 Advertising 200
Cash 200
(Being amount paid for advertising)
30-Jun-16 Depreciation 300
Computer - Accum Dep 170
Furniture - Accum Dep 130
(Being depreciation charged)

Task – 2 - Complete general ledger and calculate the closing balance of each account
Violet Chan's Consultancy Pty Ltd
Dr. Cash Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 29,000 06-Jun-16 Rent 400
01-Jun-16 Capital 15,000 11-Jun-16 Wages & Salaries 1,500
05-Jun-16 Accounts Receivable 500 15-Jun-16 Telephone 65
08-Jun-16 Capital 2,000 16-Jun-16 Office cleaning 231
23-Jun-16 Accounts Receivable 250 20-Jun-16 Rent 400
26-Jun-16 Wages & Salaries 1,500
28-Jun-16 Accounts payable 3,400
30-Jun-16 Advertising 200
30-Jun-16 Balance c/d 39,054
46,750 46,750
Dr. Accounts Receivable Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 5,500
09-Jun-16 Consulting Fees 500
24-Jun-16 Consulting Fees 4,800 30-Jun-16 Balance c/d 10,800
10,800 10,800
Dr. Computer - at cost Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 8,000 30-Jun-16 Balance c/d 9,200
04-Jun-16 Accounts Payable 1,200
9,200 9,200
Dr. Computer - Accum Dep Cr.
Date Account Amount Date Account Amount
30-Jun-16 Balance c/d 2,170 01-Jun-16 Balance b/d 2,000
30-Jun-16 Depreciation 170
2,170 2,170
Dr. Furniture - at cost Cr.
Date Account Amount Date Account Amount

01-Jun-16 Balance b/d 5,000 30-Jun-16 Balance c/d 8,400
10-Jun-16 Accounts Payable 3,400
8,400 8,400
Dr. Furniture - Accum Dep Cr.
Date Account Amount Date Account Amount
30-Jun-16 Balance c/d 1,630 01-Jun-16 Balance b/d 1,500
30-Jun-16 Depreciation 130
1,630 1,630
Dr. Accounts Payable Cr.
Date Account Amount Date Account Amount
28-Jun-16 Cash 3,400 01-Jun-16 Balance b/d 5,000
30-Jun-16 Balance c/d 6,200 04-Jun-16 Computer - at cost 1,200
10-Jun-16 Furniture - at cost 3,400
9,600 9,600
Dr. Capital Cr.
Date Account Amount Date Account Amount
30-Jun-16 Balance c/d 52,000 01-Jun-16 Balance b/d 35,000
01-Jun-16 Cash 15,000
08-Jun-16 Cash 2,000
52,000 52,000
Dr. Consulting Fees Cr.
Date Account Amount Date Account Amount
30-Jun-16 Balance c/d 37,812 01-Jun-16 Balance b/d 31,762
05-Jun-16 Cash 500
09-Jun-16
Accounts
Receivable 500
23-Jun-16 Cash 250
24-Jun-16
Accounts
Receivable 4,800
37,812 37,812
Dr. Depreciation Cr.

Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 3,500 30-Jun-16 Balance c/d 3,800
30-Jun-16
Computer - Accum
Dep 170
30-Jun-16
Furniture - Accum
Dep 130
3,800 3,800
Dr. Telephone Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 121 30-Jun-16 Balance c/d 186
15-Jun-16 Cash 65
186 186
Dr. Advertising Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 2,200 30-Jun-16 Balance c/d 2,400
30-Jun-16 Cash 200
2,400 2,400
Dr. Office cleaning Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 2,541 30-Jun-16 Balance c/d 2,772
16-Jun-16 Cash 231
2,772 2,772
Dr. Wages & Salaries Cr.
Date Account Amount Date Account Amount
01-Jun-16 Balance b/d 15,000 30-Jun-16 Balance c/d 18,000
11-Jun-16 Cash 1,500
26-Jun-16 Cash 1,500
18,000 18,000
Dr. Rent Cr.
Date Account Amount Date Account Amount

01-Jun-16 Balance b/d 4,400 30-Jun-16 Balance c/d 5,200
06-Jun-16 Cash 400
20-Jun-16 Cash 400
5,200 5,200

Task – 3 Complete the trial balance as at 30 June 2016.
Violet Chan's Consultancy Pty Ltd
Trial Balance
June, 2016
Particulars Dr. Cr.
Cash 39,054
Accounts Receivable 10,800
Computer - at cost 9,200
Computer - Accum Dep 2,170
Furniture - at cost 8,400
Furniture - Accum Dep 1,630
Accounts Payable 6,200
Capital 52,000
Consulting Fees 37,812
Depreciation 3,800
Telephone 186
Advertising 2,400
Office cleaning 2,772
Wages & Salaries 18,000
Rent 5,200
99,812 99,812

Task – 4 Complete the profit and loss statement for the year ended 30 June 2016
Violet Chan's Consultancy Pty Ltd
Profit and loss statement for the year ended 30 June
2016
Income
Consulting Fees 37,812
Expenses
Depreciation 3,800
Telephone 186
Advertising 2,400
Office cleaning 2,772
Wages & Salaries 18,000
Rent 5,200
Total Expenses 32,358
Net Profit / (Loss) 5,454

Task – 5 Complete the balance sheet as of 30 June 2016
Violet Chan's Consultancy Pty Ltd
Balance sheet as on 30 June 2016
Particulars FY 2016 FY 2015
Assets
Cash 39,054 32,350
Accounts Receivable 10,800 8,000
Total Current Assets 49,854 40,350
Computer - at Cost 9,200 5,600
Computer - Accum Dep (2,170) (1,800)
Furniture 8,400 5,000
Furniture - Accum Dep (1,630) (1,300)
Total Fixed Assets 13,800 7,500
Total Assets 63,654 47,850
Liabilities
Accounts Payable 6,200 3,800
Total Liabilities 6,200 3,800
Net Assets (Total Assets – Total
Liabilities) 57,454 44,050
Equity
Capital 52,000 39,100
Retained Earnings 5,454 4,950
Total Equity 57,454 44,050

Task – 6
Calculation of Ratio and its analysis
For analyzing the financial statements, ratios play a vital role. Ratios give a bird’s eye view of the
financial performance of the company. Discussing the important ratios below:
1. Current Ratio – The most important ratio which shows the liquidity of the company. It shows that
how well the company’s current assets are able to pay off its current liabilities, in other words, the
company’s ability to pay off its short term debts and obligations from its current assets. It is
determined by dividing the current assets of the company with its current liabilities. In the given
scenario, the company’s current ratio is 8.04 which mean that the company has the ability to
generate $8.04 in order to pay $1 of current liabilities.
2. Assets Turnover ratio – This ratio compares the revenues or sales generated with the total assets.it
helps in determining that how effectively the company is able to deploy its assets in revenue
generation and is calculated by dividing the total revenue with total assets. In current case, the
company is having a ratio of 67.82% approx. that means by adding $100 of total assets in
structure, the company can generate income of $67.
3. Return on assets – This ratio shows that by investing a $1 in assets how much net income the
company is able to generate. Again this ratio also shows the utilization of company’s assets. It is
calculated by dividing net income with total assets. Under the current situation, the ratio is 9.78%.
This ratio is higher the better.
4. Debt to Equity Ratio – Financing is an important part of business operations and this ratio shows
the financing structure of the company. The debt equity ratio shows the ratio of debt in
comparison of equity. It is calculated by dividing debt with equity. In current scenario, the
company’s debt to equity ratio is 0.11 times, which means that the company’s debt are equal to
11% of its equity. It is a healthy position for the company as the company’s debt are less than its
equity.
5. Debt Ratio – Debt ratio shows the value of debt owned against the value of assets employed and
is determined by debt to the total assets. The company has a ratio of 0.10 times meaning thereby
that the debt is equal to 10% of the assets and indicates that the company’s assets are financed
largely from equity.
6. Equity Ratio – Similar to debt ratio, equity ratio shows the percentage of equity against the value
of assets employed and is calculated by dividing the equity amount with the total assets. The ratio
is 0.90 times means that the equity is equal to 90% of the assets.
To summarize, the company has a good financial health. And want to suggest that, from analyzing the
above ratios, it seems that the company has entirely financed its operations from equity and not using the
resources in a optimum manner. So, it is suggested to increase the debt portion in the business.

Calculation of the above ratios:
(a) Current Ratio = Current Assets / Current Liabilities
= 49854/6200
= 8.04 times
(b
) Assets Turnover Ratio = Sales / Average total Assets
= 37812/(63654+47850)/2
= 67.82%
(c) Return on assets = Net Income / Average Total assets
= 5454/((63654+47850)/2)
= 9.78%
(d
) Debt to Equity Ratio = Debt / Equity
= 6200/57454
= 0.11 times
(e) Debt Ratio = Total Liabilities / Total assets
= 6200/63654
= 0.10 times
(f) Equity Ratio = Total Equity / Total assets
= 57454/63654
= 0.90 times