Financial Analysis of Globe International Limited

Running head: REPORT 0
ACCOUNTS FOR MANAGERS
SEPTEMBER 10, 2019
STUDENT DETAILS:

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Executive summary
The financial strength of business is main concern for the business owners, investors,
managers as well as lenders. The cost control as well as efficiency is essential for success in
various organisations throughout the world. There are various manners to evaluate financial
strength of the organisation. The key is recognising correct measurement devices for the
corporation, taking into consideration, the sector, life cycle’s stage, time-horizon, objectives of
business, as well as financial condition. It is significant to understand the financial performance
of company relative to the industry as all corporations compete in the market on regional,
central, domestic, or global level. Generally, the financial strength of the entity may be evaluated
in 3 main areas: profitability, solvency as well as liquidity. The purpose and significance of ratio
analysis are to assess financial performance of entity in terms of risks, Profitability, efficiency as
well as solvency. The trend analysis looks at the performance of company over time (not only 1
year) and states whether an entity is improving or reducing in performance. The trend
analysis needs the business owner to calculate ratio over various business years. In the following
parts, the ratio analysis and trend analysis of Globe International Limited is discussed and
examined.

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Contents
Introduction......................................................................................................................................3
Ratio analysis...................................................................................................................................3
Profitability Ratios.......................................................................................................................4
Liquidity ratios.............................................................................................................................5
Efficiency ratio.............................................................................................................................6
Solvency ratios.............................................................................................................................8
Trend analysis-.................................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Appendix 1: Financial statements..................................................................................................13
Appendix 2: Ratio analysis............................................................................................................15
Appendix 3: Trend analysis...........................................................................................................16

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Introduction
The financial analysis is a very important process. It can be used to determine the
corporation’s performance as per the balance sheet, cash flow as well as income statement of
company by the trend analysis as well as ratio analysis. A major objective of financial analysis is
to assess liquidity, solvency, stability as well as profitability of the corporation to confirm
financial investments. The financial analysis is used to evaluate the financial trends, financial
policies, and the long-term plans for the business functions. It is also used in identifying best
projects for the investment. The financial analysis is helpful to render the relevant information to
company’s stakeholders in taking good decision. The company’s management is liable for taking
decision as well as making plan and strategy for the upcoming period. Some areas are required to
be concerned by the company to enhance the financial health of corporation. This report states
financial strength of Globe International Limited by trend analysis as well as ratio analysis. The
following parts also discuss the recommendations for necessary changes.
Ratio analysis
The ratio analysis is assessment of financial performance of the corporation regarding
various bases like liquidity, solvency, and profitability, efficiency as well as efficiency ratios. It
is quantitative analysis of the information included in financial statement of the corporation. it is
helpful for comparing the trend of two or more entity over time. The ratio analysis provides the
idea to the investor in relation to the financial position of entity (Alexander, 2011). By

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conducting the ratio analysis, the comparison can be made between data of one company can be
made to competitor or industry’s data (Al Quait and Doherty, 2016). With the help of ratio
analysis, we interpret the numbers from the balance sheet and income statements. Every
stakeholders have numerous interests while this comes to an outcome from financial such as
equity investor is interested in development of the dividend payment as well as earning powers
of company in long-term. The ratios are mentioned below-
Profitability Ratios
The profitability examines earning ability or ability to get positive net earning for a given
level of sales or investments. While company is not profitable or cost effective, in that case the
corporation finally becomes bankrupt. The profit margin ratio can be considered as best example
of financial ratio. The profitability ratio assesses the net income the company gets relative to the
sales made by the corporation. The net profit margin is considered as main standard for the
investors that help in making the investment in the business for evaluating the financial condition
of company. The profitability ratio is so advantageous to assess the total profitability of
corporation. Higher net margin ratio defines adequate management of matters of entity. In 2014,
the net margin is -11.83%. Further, it is increased to 2.70% in 2015, 3.14% in 2016, and 3.62 %
in 2017. Furthermore, it is increased to 5.71% in 2018. While compare to industry, it is found
that industry average ratio is -13.10%. It means that company is doing well by boosting the sales
(Williams and Dobelman, 2017).
The gross margin is other best example of the financial ratios. The gross
margin represents sales revenue that the corporation retains after incurring direct cost related to
producing service and good it sells. In 2014, the gross margin was 46.38 %. Further, it was

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increased to 108.15 % in year 2015. It was reduced to 98.47 % in 2016, and 45.85% in 2017.
After this, is again increased to 47.77%. While comparison to industry, it is found that, the
industry average ratio is 48.54%. It can see that the unmanaged gross margin can be losing
money for the company. The company should maintain the gross margin high to pay the fixed
overhead expenses such as rent, payroll, as well as utilities.
Liquidity ratios
The liquidity assesses ability of the corporation for utilising the current sources for
fulfilling the short-term requirements. While the corporation cannot meet short term obligation
timely, after that this finally becomes insolvent. An entity can need liquidation or reorganisation.
A high ratio of current sources to short-term obligations defines the solider the entity (Moolman,
2017).
For evaluating the company’s liquidity position, the ratios like current ratio as well as
equity ratio of the corporation are defined to search the capability of company to provide the
current liabilities in excess of current assets. Current ratio is considered as working-capital ratio.