Financial Analysis and Comparison

The assignment compares the financial performance of Capilano and Select using ratio analysis. It calculates and compares various financial ratios such as turnover ratio, profitability, debt management, and return on equity for both companies. The results show that Capilano has a better financial postcondition compared to Select.

Numerical problem-solving -Financing
Enterprises

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................2
QUESTION 3...................................................................................................................................2
QUESTION 4...................................................................................................................................3
QUESTION 5...................................................................................................................................4
CONCLUSION ...............................................................................................................................5
REFERENCE...................................................................................................................................7

INTRODUCTION
The financial position of a business is evaluated through the ratio analysis. There are
various different ratios that are calculated for analysts of financial performance of a business.
The ratio are related with the profitability, solvency, efficiency and liquidity ratios. Ratios aid
managers of an organisation to evaluate the overall performance of the entity and the manager
can also compare the ratio with its past performance to see the improvement of decrement in the
performance of the business. In the present report a financial analysis of firms Capilano Honey
Limited and Select Harvests Limited is done to calculate the financial position and providing an
interpretation so that a loan advancement decision can be taken in favour of one the company.
QUESTION 1
Capilano Honey Limited Select Harvests Limited
Particulars 2016 2017 2016 2017
Long term debt 10 7 52 35
Shareholders’
equity
56 62 391 278
Debt-equity
ratio
.18 .11 .13 .13
Capilano Honey Limited Select Harvests Limited
Particulars 2016 2017 2016 2017
Total Liabilities 44 34 159 202
Total assets 100 96 450 480
Debt ratio 0.44 0.35 0.35 0.42
Interpretation: the debt equity ratio of a firm indicates the relative proportion of the
equity of the shareholders and the debt amount used by the business to finance its assets. This
ratio determines the long term solvency position of a business. the ratio indicates the ability of a
business to pay its long term debts and borrowings (Stone and et.al., 2016). The debt equity
ration of Capilano have reduced from 0.18 to 0.11 which is not good indicator for the business as
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there is an increase in debt amount and reduction in shareholder equity. Select on the other hand
with a reduction in share capital and there is a decrement in long term debt keeping the ratio on
same level of 0.13 for both years. For Capilano the total liability and total assets falls from 2016
to 2017 by 10 and 4 respectively (Chu and et.al., 2017). this also decreased the debt ratio of the
firm from .44 to 0.35. the proportionate fall in total liabilities is more than the fall in total assets
this indicates that the firm is reducing its liability as it a firm shall haver a lesser amount of debt
in its capital structure.
QUESTION 2
Capilano Honey Limited Select Harvests Limited
Particulars 2016 2017 2016 2017
Operating profit 18 16 4 -26
Net profit 9 10 34 9
Sales revenue 133 133 286 240
Operating profit
margin
13.5% 12.0% 1.4% -10.8%
Operating profit
margin
6.8% 7.5% 11.9% 3.8%
Interpretation: there is decrement on operating profit of Capilano by 2 from 2016 to
2017 but decrement in net profit by 1 this indicated the cost control by Capilano as sales revenue
was same for both the years at 133 (Ortea and Gallardo, 2015). the sales revenue for select have
decreased from 286 to 240 reducing net profits to 9 from 34 and resulted in negative operating
profit of (26). the net profit margin of Capilano increased from 6.8% to 7.5% but it decreased for
select from 11.9% to 3.8 resulting in operating profit margin of 12% and -10.8% respectively.
QUESTION 3
Computation of assets turnover ratio
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Capilano Honey Limited Select Harvests Limited
Particulars 2016 2017 2016 2017
Total assets 85 98 469 465
Fixed assets 22 25 287 319
Sales revenue 133 133 286 240
Fixed assets
turnover ratio
6.19 5.43 1.00 0.75
Total assets
turnover ratio
1.57 1.36 0.61 0.52
Interpretation: the turnover ratio calculated the utilisation of fixed and total assets for
generation of the sales revenue. The more efficient utilization if the assets the more increase in
the sales revenue (Petruzzo and et.al., 2015). Capilano have increased its assets ownership by 13
from 85 to 98. the sales revenue of the firm is content for both the years which leads to fall in
fixed asset turnover ratio to 5.34 from 6.19 and total asset turnover ration from 1.57 to 1.36. this
indicates inefficient utilization of assets in the firm.
The sales revenue if the firm have decreased from 286 to 240 and there is an increment in
the ownership of the firms assets from 287 to 319, but the total assets have reduced by 4 due to
fall in the sales revenue of the firm (Luo, D and et.al., 2015). The result was decrement in the
fixed asset turnover ration by 0.25 in year 2016 / the total asset turn over ratio have also reduced
by 0.9. the ownership of assets have incensed but the major reason for the fall in the ratio is
decrease in the sales revenue. This also indicate that the business is not utilizing the assets
efficiently to generate the sales revenue (Ratio analysis, 2018). The inefficient assets' utilizations
more in select as compared to Capilano as the there s a fall in the ratio but not inch sales revenue
but in select the sales revenue and the ration both have fall down.
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QUESTION 4
Capilano Honey Limited Select Harvests Limited
Particulars 2016 2017 2016 2017
Net profit 9 10 34 9
Shareholders’ equity 56 62 391 278
Return on invested
capital
16.07% 16.13% 8.70% 3.24%
Interpretation: for any business the main objective is to increase the shareholders'
equity with an increment in the returns provide to them in from of dividends (Keshavarz-
Ghorabaee and et.al., 2018). The shareholder is the owners of the firm as they have invested in
the business by providing funds in form of share capital so it is the duty and responsibility of a
business to pay them sufficient returns. The more satisfied the shareholder the more good
reputation a business holds. The return on capital employed is the ratio which calculated the
return that are actually earned for the shareholders of the business the return of capital employed
is the final amount that is left with a business after payment of all the expanses, interest and taxes
to the government.
There is increment in the net profit of Capilano from 9 to 10 and increment in the
shareholder's equity this will increase the return for shareholder as profits are high and there is
an increase in capital so with a higher profits and number of shares results in increasing return
per share hence the return on capital employed for Capilano have increased from 16.07% to
16.13%. select have seen a major fall in on its net profits from 35 to 9, there is steep fall of 26
which is a huge loss to the firm (Frick, Schuessler and von Blanckenburg, 2016). With this the
share capital of the firm have also reduced from 391 to 278. the increase in share capital could
contribute in increment in per share earning but with such a huge loss the return on capital
employed will definitely. As states before the ration have fallen from 8.70% to 3.24%. there is a
fall of approximately 5.5 %
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QUESTION 5
Evaluation and recommendation:
Evaluation
Ratio Strongest
Operating profit margin Capilano
Net profit margin Capilano
Total assets turnover ratio Select
Fixed assets turnover ratio Select
Return on invested capital Capilano
Debt-equity ratio Select
Debt ratio Capilano
With regards to the printability ratios of a business the Capilano serve a better profits and
ratio as there is an increase in the net profits of the business without any change in the sales
which indicates the cost control by the business. The sales revenue of the select have reduced
resulting in the fall in the net and operating margin ratio.
For the turnover ratios select enjoys a better place than Capilano this indicates that select
is efficiently using its old and newly acquired assets for generation of better sells revenue. The
return on the capital employed is better for Capilano as compared to the select (Tsai and et.al.,
2016). As far as debt ratios are concerned the debt equity ratio is better for select but the debt
ratio is better for Capilano, the reason for better debt equity ration of select is acquisition of new
share capital by the firm.
Recommendation for loan advancement: any bank or financial institution before
granting a large amount of loan to a business entity first go through its financial position. The
evaluation is carries out through ration analysis in order to evaluate their past and present
financial performances and forecast the future as the ability of the business to repay the loan
amount. A ratio analysis of both Capilano and Select has been carried out which gave a result of
a better profitability and debt ration of Capilano as compared to Select. For the turnover ratio
select is better in comparison to Capilano (Debt equity ratio, 2018). For the purpose of granting a
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loan a bank sees the debt ratio of a business as it reflect its ability to repay the loan and amount
of debt in the capital structure of business, the loan shall be granted to Capilano.
CONCLUSION
From the above report if a ratio analysis of Capilano and select it can be concluded that
Capilano is in a better financial postcondition as compared to Select. The business entity Select
have good turnover ratio but Capilano have better profitability, debt management and return for
its shareholders.
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REFERENCE
Books and Journal
Chu, P. L and et.al., 2017. Financial analysis and risk assessment of hydroprocessed renewable
jet fuel production from camelina, carinata and used cooking oil. Applied energy, 198,
pp.401-409.
Frick, D .A., Schuessler, J. A. and von Blanckenburg, F., 2016. Development of routines for
simultaneous in situ chemical composition and stable Si isotope ratio analysis by
femtosecond laser ablation inductively coupled plasma mass spectrometry. Analytica
chimica acta, 938, pp.33-43.
Keshavarz-Ghorabaee, M and et.al., 2018. An Extended Step-Wise Weight Assessment Ratio
Analysis with Symmetric Interval Type-2 Fuzzy Sets for Determining the Subjective
Weights of Criteria in Multi-Criteria Decision-Making Problems. Symmetry, 10(4), p.91.
Luo, D and et.al., 2015. The application of stable isotope ratio analysis to determine the
geographical origin of wheat. Food chemistry, 174, pp.197-201.
Ortea, I. and Gallardo, J. M., 2015. Investigation of production method, geographical origin and
species authentication in commercially relevant shrimps using stable isotope ratio and/or
multi-element analyses combined with chemometrics: An exploratory analysis. Food
chemistry, 170, pp.145-153.
Petruzzo, P and et.al., 2015. Outcomes after bilateral hand allotransplantation: a risk/benefit ratio
analysis. Annals of surgery, 261(1), pp.213-220.
Stone, A. B and et.al., 2016. Implementation costs of an enhanced recovery after surgery
program in the United States: a financial model and sensitivity analysis based on
experiences at a quaternary academic medical center. Journal of the American College of
Surgeons, 222(3), pp.219-225.
Tsai, J and et.al., 2016. Lymph node ratio analysis after neoadjuvant chemotherapy is prognostic
in hormone receptor-positive and triple-negative breast cancer. Annals of surgical
oncology, 23(10), pp.3310-3316.
Online
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Debt equity ratio. 2018. [Online]. Available through
:<https://www.accountingformanagement.org/debt-to-equity-ratio/>.
Ratio analysis. 2018. [Online]. Available through
:<https://www.investopedia.com/terms/r/ratioanalysis.asp>.
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