Financial Performance Analysis of Stitches

Running head: PRINCIPLES OF ACCOUNTING
Principles of accounting
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1PRINCIPLES OF ACCOUNTING
Introduction
Te report will focus on the financial performance of Stitches after completing the
financial statements for the company. After completing the financial statements the report will
focus on analysing the performances through ratio analysis. Finally based on the outcome the
report will provide suggestions to improve the company’s profitability (Sridharan 2015)
Financial statement analysis
 Net profit margin – net profit margin is computed to measure the company’s profit
earning capability from the revenue earned by it. Looking into the company’s net profit
margin it can be identified that the net profit margin of the company is 35.99%. It is
signifying that the company will have sufficient amount to return to shareholders after
meeting all the operational expenses (Cao, Chychyla and Stewart 2015)
 Gross margin – it measures the company’s capability in generating earning from the sales
revenue after paying for the expenses of cost of sales. Looking into the company’s gross
profit margin it can be identified that the gross profit margin of the company is 82.29%. It
is signifying that the company will have sufficient amount to meet all the operational
expenses
 Current ratio – current ratio represents the ability of the company to meet the short term
obligation with the current assets of the entity. Looking into the current ratio of the
company it can be observed that the current ratio of the company is 2.14. It is signifying
that the company is able to meet its short term obligation comfortably (Easton and
Sommers 2018.)