Financial Analysis Report: Comparative Performance Review

This report presents a comparative financial analysis of two organizations, NCX and FAN, evaluating their performance through various financial ratios and accounting policies. The analysis includes asset turnover, gross margin, current and quick ratios, accounts receivable and payable turnover and days, inventory turnover, debt-equity ratio, and times interest earned ratio. The report identifies differences in performance, attributing them to strategic decisions and management effectiveness. It provides strategic recommendations for both companies, such as budgetary control, investment in profitable activities, and optimizing debt-equity mix. The report emphasizes the importance of financial analysis for informed decision-making, suggesting measures to improve profitability, manage solvency, and optimize cash flow. The analysis highlights the need for cost-cutting, improved marketing, and debt reduction to enhance financial health and sustainability.

REVIEW

TABLE OF CONTENTS
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1
The accounting policies of both organizations are effective. The accounting policies of NCX
organization are related to taxation such as GST (Goods and Services Tax). The net amount of
GST recoverable from or payable to government is included as a part of receivables or payables
in the financial statements. Moreover, commitments and contingencies are disclosed net of
amount payable of GST to taxation department. However, FAN has different accounting
policies. Auditors are important persons in both the companies as they have reflected true and
fair position of organizations in a better way. The financial period of NCX is ended on June of
every year and that of other company is ended on annual basis on March every year. Financial
period plays an important role as the financial position of them are reflected and is essential to
check its growth and expansion of activities throughout the period.
2  Asset turnover: Asset turnover ratio value is 2.93 for FAN and same is 1.86 for NCX and
it can be said that former firm is making best use of asset to generate sales then latter
firm. Gross margin: Gross margin of FAN is 44% and same for NCX is 61%. This reflevt that
NCX have strong curb on expenditure then FAN. Current ratio: Current ratio value is 1.88 for FAN and same is 1.57 for NCX. It can be
said that liquidity position FAN is better then NCX. Quick ratio: Quick ratio value is 0.54 for FAN and same is 0.92 for NCX which means
that liquidity position of letter firm is better the former firm. A/R turnover: A/R turnover value is 104 for FAN and for NCX its value is 940. This
means that FAN generate 104 times sales by using receivables then NCX which generate
sales 940 times. It can be said that FAN is in better condition then NCX. A/R days: FAN cover receivable in 3.50 days and NCX cover it is 0.39 days which is 1
day. Cash management strategy of NCX is better then FAN. Inventory turnover: Inventory turnover ratio value is 3.34 for FAN and same for NCX is
3.18. FAN relative to NCX is quickly converting inventory in to sales. A/P turnover: FAN make credit purchase 8 times in year and same is 2.31 in case of
NCX. Hence, NCX cash availability condition is better.
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 A/P days: FAN pay debt in 46.05 days and same is 158.11 in case of NCX. Hence, it can
be said that FAN is following appropriate strategy in its business. Cash cycle: NCX cash cycle is negative and is in better position. Debt equity ratio: There is less proportion of debt in case of FAN then NCX. Hence,
capital structure of NCX is balanced then FAN. TIE: FAN can not pay debt on time as its ratio value is negative then NCX.
3
From assessment, it has identified that company’s decision or strategic framework
and financial results are highly associated with each other. Moreover, the main aim of business
unit is to develop competent framework that aid in the growth and profitability aspect of firm.
For instance: Considering the outcome of ratio analysis, FAN needs to undertake strategic action
or measure in the form budgetary control to exert control on expenses. Moreover, by doing
continuous monitoring of expenses business unit would become able to reduce overspending and
maximize profitability aspect. Along with this, in the context of NCX, management team needs
to make focus on investing money in productive activities or profitable proposal rather than
maintaining high quick ratio. This in turn helps management team in enhancing the level of
profit margin to a great extent. In addition to this, management team of both the organizations
needs to lay emphasis on using optimal debt-equity mix such as .5:1.Currently, debt position of
both FAN and NCX is high so in the near future such business units should raise fund from
equity sources which in turn helps firm in developing suitable capital structure. Considering all
the above aspects, it can be stated that strategic decisions and financial results of the firms are
highly related with each other.
4
Two companies results are different because FAN management is excellent and it is
taking risk in its business but it is taking care of its stakehodlers and formulate strategy
accordingle. Due to this reason results are different.
5.
Strategic financial analysis is extremely useful for the managers to make better and
informed decision. Considering the comparative profitability analysis through different ratios, it
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is found that FAN is not performing well, therefore, business managers need to find under-
performing areas and make necessary decisions to improve it. Employing cost-cutting measures
to control overrunning cost and marketing tactics & pricing mechanism will enable firm to boost
its revenue, as a result, it will be easy for the enterprise to improve their ROE, ROA and their net
profitability margin to a considerable extent. It will increase its competitive position and enable
firm to assure sustainability.
Besides this, although FAN has less leverage, still, company must reduce its debt level to
minimize its debt burden and manage solvency position accordingly. In the solvency, time to
interest earned ratio found negative to -37.67 which shows that high leverage in the business is
very risky for the firm and may bring financial trouble because due to lack of profitability, it
would not be able to make scheduled payment to lenders. Thus, it necessitates managers to
design a robust capital structure by minimizing debt for managing its solvency position.
Liquidity ratios suggest business managers to create rationale cash collection mechanism by
perfectly managing their trade debtors and creditors to maximize their capability to pay
outstanding payments to suppliers on time.
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REFERENCES
Online
How to measure company performance, 2016. [Online] Available Through:
https://hbr.org/2010/03/the-best-way-to-measure-company
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