Analyzing Debt and Efficiency Ratios: Clariton's Performance Improvement

This assignment focuses on analyzing the financial performance of Clariton between Fiscal Years 2015 and 2016. It involves calculating and interpreting two key financial ratios: debt to equity ratio and efficiency ratios (asset turnover and inventory turnover). The debt to equity ratio shows a slight improvement from 0.58:1 to 0.55:1, indicating a decline in debt burden and enhanced performance. Efficiency ratios demonstrate increased efficiency, with assets turnover improving from 1.55 times to 1.60 times and inventory turnover increasing from 22.72 times to 22.91 times.

MANAGING FINANCIAL
RESOURCES

TABLE OF CONTENTS
TASK 2............................................................................................................................................1
2.3 Information required for different financial decision makers..........................................1
TASK 4............................................................................................................................................1
4.1 Basic elements of financial statements.............................................................................1
4.2 Comparing financial statements of Clariton Antiques Limited with partnership entity. .2
4.3 Analysing financial performance of the Clariton firm using financial ratios...................7
REFERENCES..............................................................................................................................10

TASK 2
2.3 Information required for different financial decision makers
Partners- Within company when finance is raised through additional partners then they
require information regarding to the profitability of the firm. The reason is that, higher the
amount of profit when generated by the entity then it is beneficial to put money. Along with this,
liquidity condition of Clariton limited is also necessary to take in to account because it shows
firm's ability to pay debt amount on time. Hence, profitability is one of the very main concern to
make decisions regarding financials in the company
Venture capitalist (We Finance Limited)- It relies on the company's return on
investment ratio and as the proportion of such ratio is higher, then it gives more fund. Due to
this, while allowing Clariton for raising finance, venture capitalist basically needed information
relating to the ROI (Smith and et.al., 2016). Apart from this, minimum requirement of venture
capital is that, the business must has at least 50% ROI which lead to generate better return.
Finance broker- It is the intermediary party among the bank as well as business which is
going to take fund from external source. The finance broker is also concern towards the profit
condition of the Clariton because more income leads to earning of higher brokerage amount.
Apart from this, bank requires financial statements through which it determines valuation of the
firm within industry in effectual manner. More the valuation of business lead to raise higher
amount from the bank and expand it in other market.
TASK 4
4.1 Basic elements of financial statements
Income statement- Very basic account which prepared and highly required for the
company is income statements which is used for assessing profitability of the business firm
within industry. It has mainly three elements through which overall statements made which are
revenue or net sales, expenses and income or profit. Revenue shows those amount which are
earned by selling products and giving services. It is also known by term annual turnover among
the people. In second element all kinds of expenses such as fixed, variable, direct, indirect,
operating etc. costs are recorded (Repetti and Jung, 2014). Moreover, three basic incomes are
shown which are such as gross, operating as well net.
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Balance sheet- Statement of the financial statements like balance sheet depicts liquidity
position of the firm through which Clariton Company can know that up to which level it able to
meet with the short term debts. It has generally two main heading which are such as assets as
well as liabilities. In the assets side two sub heading included which are like fixed as well as non-
fixed assets. Apart from this, when looking at the liabilities side then it includes three elements
which are such as current and fixed liabilities as well as shareholder's equity.
Cash flow statement- The financial account under which costs and position of different
kinds of activities are shown is considered as cash flow statement. Through this Clariton able to
know determine that at the end of year it is at the which position in terms of cash ( Revell, 2016).
Generally cash flows of main three activities are described at here which are stated below:
 Cash flow from operating activities
 Cash flow from financing activities
 Cash flow from investing activities
Statement of changes in equity and gains- The company when raise finance and capital
for the business by issuing shares in the market is called as equity capital. In this section of
financial the management shows about amount of capital which is raised through equity shares.
Along with this, amount of dividend as well as retained profit is also described in the statement
of changes in equity and gains (Sabri and et.al., 2015).
Disclosures of financial accounts- It presents different kinds of notes, accounting
standards, GAAP theories etc. which are used to make accounting treatments in different
financial statements. Apart from this, those principles of accounting like going concern,
consistency, prudence etc. are also stated through which any kind of treatments are made in the
books of accounts.
4.2 Comparing financial statements of Clariton Antiques Limited with partnership entity
Base of making
difference
Clariton Antiques Limited Partnership firm
Capital account In the balance sheet accounts of
capital made only one.
Due to having two or more number of
partners capital accounts are prepared in
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accordance to that. Further, when in the
firm number of partners are 2 or 4 then
capital accounts also same.
Interest amount Expenses of the interest which are
paid on bank loan by the firm are
necessary to involve in the books of
profit and loss statements (Park and
Jang, 2014).
There is not any kind of requirement
under which interest expense must be
treated in the income statement.
Auditing For the limited firms it is highly
necessary to use and adopt auditing
process as it is legal concept.
For this, no requirement to adopt such
any kind of internal and external
auditing process.
Accounting
principles and
standards
While preparing financial
statements it is highly compulsory
to use all the principles as well as
standards in legal manner.
To adopt any accounting principles and
standards are not requirement legally.
Necessary
financial
accounts
It is highly necessary to make and
prepare all the available financial
accounts for limited organisation
like Clariton.
Not required to make all the statements
but for the purpose of assessing profit
and liquid position partnership firms
used to prepare income statements and
balance sheet respectively (Perini and
et.al., 2014).
Formates of income statement as well as balance sheet for partnership and Limited
company are given as below:
Income statement of partnership firm
3

Income statement of Limited company
4

Balance sheet of sole proprietor
5

Balance sheet of Limited company
6

4.3 Analysing financial performance of the Clariton firm using financial ratios
Profitability ratios
It has been assessed that Clariton business firm reduces GP ratio from 14.34% to 14.18%
from the FY 2015 to 2016. It shows that cost of goods sold is higher at the end of next year as
compare to the previous accounting period. When looking at the NP then it can be said that entity
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performs well in the industry and able to reduce indirect costs in effectual ways. Reason behind
such analysis is that, ratio of net yield was 1.89% at the end of FY 2015 which enhances in the
2016 which is like 2.63%.
Liquidity ratios
From the above mentioned table and calculation of liquidity ratios it can be said that
business performance of Clariton is higher and well compare to the last year. Current ratio of the
company increases from 0.23:1 to 0.33:1 along with this value of quick ratio is also enhnaces
from 0.08:1 to 0.18:1 at the end of accounting year 2016. Moreover, by such values it can be
interpreted that Clariton Antiques Limited company is highly able to improve its ability in order
to fulfil its all those debts which are taken for short term.
Debt to equity ratio
The ratio which gives framework of capital structure of the entity in every year is called
as debt to equity ratio. Lower the value or proportion of this ratio is better for the firm and
depicts that entity performs well (Rauch and Wende, 2015). In the current scenario, ratio of
entity reduces from 0.58:1 to 0.55:1 which is sign of increasing performance and declining debt
burden on not.
Efficiency ratios
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It has been interpreted through aforementioned table of efficiency ratios that, Clariton
become more and highly efficient in the FY 2016 when comparing with the FY 2015. Assets
turnover ratio increases from 1.55 times to 1.60 times which depicts that it able to use assets in
better ways which leads to generate more revenue. Apart from this, when visualising at the
inventory turnover ratio then it enhances from 22.72 times to 22.91 which is sign of optimum
utilisation of the stock in order to generate sales.
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REFERENCES
Park, K. and Jang, S., 2014. Hospitality finance and managerial accounting research: Suggesting
an interdisciplinary research agenda. International Journal of Contemporary Hospitality
Management. 26(5). pp. 751-777.
Perini, M. and et.al., 2014. Stable isotope ratio analysis for verifying the authenticity of balsamic
and wine vinegar. Journal of agricultural and food chemistry. 62(32). pp. 8197-8203.
Rauch, J. and Wende, S., 2015. Solvency prediction for property-liability insurance companies:
Evidence from the financial crisis. The Geneva Papers on Risk and Insurance Issues and
Practice. 40(1). pp. 47-65.
Repetti, T. and Jung, S. Y., 2014. The Importance of Finance and Accounting Competencies:
The Gaming Industry's Perspective. The Journal of Hospitality Financial Management.
22(1). pp. 4-17.
Revell, J., 2016. The recent evolution of financial systems. Springer.
Sabri, M. F. and et.al., 2015. Financial literacy, financial Management practices, and retirement
confidence among Women working in government Agencies: A mediation model. The
Journal of Developing Areas. 49(6). pp. 405-412.
Smith, K. E. and et.al., 2016. High-Precision (MC-ICPMS) Isotope Ratio Analysis Reveals
Contrasting Sources of Elevated Blood Lead Levels of an Adult with Retained Bullet
Fragments, and of His Child, in Milwaukee, Wisconsin. Biological Trace Element
Research. pp.1-10.
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