Ratio Analysis Of Gelato Industries | Report
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Added on 2020-02-24
Ratio Analysis Of Gelato Industries | Report
Added on 2020-02-24
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Ratio Analysis
ContentsIntroduction...........................................................................................................................................1Ratio analysis.........................................................................................................................................1Gelato’s financial position at end of 2014.........................................................................................2Gelato’s capital structure ratio in 2015.............................................................................................2Analysis of financial condition and Performance of Gelato Industries..............................................3Conclusion.............................................................................................................................................3Warren Buffet........................................................................................................................................3Investing Techniques by Warren Buffet.............................................................................................4Bibliography...........................................................................................................................................4IntroductionRatio analysis is a quantitative approach to analysing the financial performance of a company. The ratios are calculated from the financial statements including income statement,balance sheet and cash flow statement. Ratio analysis helps in identifying the operating and financial performance of a company for a specific period [ CITATION Baj99 \l 16393 ] Ratio analysis helps in comparison between two companies and also helps in identifying trends in acompany by comparing the year over year performance. In the report, a ratio analysis of Gelato industries has been conducted to evaluate its financial performance for the years 2014 and 2015 and also comparing the ratios with the industry standards.Ratio analysisThe ratios categorized into profitability, liquidity, asset management efficiency and capital structure are presented below:Ratio20152014IndustryAverageProfitability RatioOperating profit margin10.5%9.6%10%
Return on assets11.7%6.1%11.4%Return on equity30.3%12.2%9.5%Liquidity RatioCurrent Ratio0.91.82Quick Ratio0.20.80.8Interest coverage ratio4.623.153.8Asset Management Efficiency RatioAverage collection period18.5 days29.7 days37 daysInventory turnover4.063.102.5Total assets turnover2.051.331.14Fixed assets turnover3.502.421.4Capital Structure RatioDebt ratio47%41%58%Gelato’s financial position at end of 2014The company’s profitability is a little low as compared to the industry average in 2014. The operating profit margin is near to industry standards but the return on assets is very low as compared to the industry. This means the company is not utilizing its assets efficiently to generate revenue. The return on equity is higher than the industry average. This means the wealth of the shareholders is growing. The liquidity is also very near to the industry average. The current ratio is a little below 2, thequick ratio is as good as the industry average and the interest coverage ratio is also very near to the industry average. The current ratio of more than 1 means that the company has more current assets than current liabilities and can easily pay for its current obligations. The quick ratio has decreased to 0.8 implying a lot of funds tied up in inventory. But this is ok as it is the nature of the industry in which the company operates. The interest coverage ratio also shows company has 4 times more operating profits to pay for its interest expenses. Thus the liquidity of the company is good.The asset management efficiency is also better than the industry standards. All ratios except average collection period are more than the industry average. The company is managing its inventory well with turnover of 3 which means inventory is rotated 3 times in a year to generate sales. The company is using its fixed assets and total assets efficiently as compared to the industry to generate sales. The overall efficiency of working capital management is good.
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