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An Understanding of Entity Performance

   

Added on  2020-04-07

6 Pages1662 Words44 Views
ANALYTICAL PROCEDURES – AN UNDERSTANDING OF ENTITY’S PERFORMANCEAnalytical review has been conducted by following the ratio analysis of the company financialstatements for the last three years and then of the competitor – Ainsworth Game Technology. Inorder to facilitate the more comparability, the ratios of industry have also been identified. Theratios under the major four heads have been calculated and mentioned – Liquidity ratio,profitability ratio, long term solvency ratio and market strength ratio. In order to start with the company’s ratio analysis, the debtor’s turnover ratio has been increasingon year on year basis from 2.54 in the year 2014 to 4.92 in the year of 2016. It indicates that thecompany has either started making the sales in cash to the customers or has increased theefficiency in collection of the revenue from the customers of the company. The competitor hasearned 2.40 as debtor’s turnover ratio which means that the company is more efficient in doingthe business and when the same is compared to the industry where 8.50 is the benchmark, theefficiency of the company is lower (Drake, 2010, Delen, 2013). The second ratio is the net profit margin. The company has earned the net profit margin ofnegative 1.96 in the year of 2014, 11.78 in the year of 2015 and 16.47 in the year of 2016. Itdepicts that the company has increased its growth significantly. The competitor of the companyhas earned 19.51 as net profit margin which indicates that although the competitor is notefficiently managing its debtors but has been able to earn the high net profit margins at the end ofthe year. When the ratio of net profit margin of the company and competitor is compared withthe industry then it is observed that both the companies have exceeded the level of the industryand is generating higher net profit margins (Delen, 2013, PCAOB, 2017). The third measure that has been considered is the earnings per share. The company has disclosedand earned the 20.6 per share in the year of 2014, 24.8 in the year of 2015 and 55.10 in the yearof 2016. The company has been able to perform very well in the three years and have been ableto achieve the higher earnings per share almost more than double of previous year. Thecompetitor has earned the 16 per share. When these figures are compared with the industry thenit is shown that the company under consideration has performed very well in relation to the

providing the maximum return to the shareholder of the company (Company Official Website,2016; Company Official Website,2015; Company Official Website2014) STATEMENT SHOWING THE RATIO ANALYSIS($ millions)S. No.PARTICULARS201620152014CompetitorIndustry( Ainsworth Game technology 2016)(As per Investing .com)1Liquidity RatiosaCurrent Assets875.1898.5701.5208.1Less Current Liabilities549.2442.4371.747.8Working Capital325.9456.1329.8160.3bCurrent Ratio1.592.031.894.351.59cDebtors432.9441.9328.4118.8Revenue2128.71582.4833.7285.5Debtors Turnover Ratio4.923.582.542.408.5dAssets2987.73218.71112.7435.9Revenue2128.71582.4833.7285.5Assets Turnover Ratio0.710.490.750.650.53eStock124.3102.275.855.7Revenue2128.71582.4833.7285.5Stock Turnover Ratio17.1315.4811.005.1376.252Profitability RatiosaNet Profit350.5186.4-16.355.7Revenue2128.71582.4833.7285.5Net Profit Margin16.4711.78-1.9619.5111.07bGross Profit1256.0903.3457.8171.7Revenue2128.71582.4833.7285.5

Gross Profit Margin59.0057.0854.9160.1451.193Long Term Solvency RatiosaTotal Debt1912.22301.3406.6120.1Equity1075.5917.4706.1315.9Total Debt to Equity177.80250.8557.5838.0292.53bLong Term Debt1363.01858.934.972.4Equity1075.5917.4706.1315.9Long Term Debt to Equity126.73202.634.9422.9291.5cDebt1912.22301.3406.6120.1Total Assets2987.73218.71112.7435.9Debt Ratio64.0071.5036.5427.554Market Strength RatiosaEarnings Per Share (cents) $ 55.1 $ 24.8 $ 20.6 $ 17 $ 35 UNDERSTANDING OF MANAGEMENT AND GOVERNANCEThe management plays the important role in the functioning of the company. Without propermanagement, the company will not be able to perform and achieve its objectives. Under thisheading, the company’s working and the functions of the management of the company and thosecharged with governance will be discussed.-Integrity and Ethical Values – As per the report of the chairman of the companyembedded in the annual report of the company, the company has established theobjectives and the strategies which led company to have the effectiveness in theoperations of the company along with the good administration across all level of thecompany. Secondly the management of the company wherever required has been able tomake the estimates and judgments and the assumptions which further led to ensure that

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