Detailed Financial Ratio Analysis Report - [Company Name]

This report conducts a thorough ratio analysis of a company's financial performance, encompassing the years 2013 and 2014. The analysis includes the calculation and interpretation of key financial ratios such as the gross margin ratio, current ratio, debt ratio, receivables turnover ratio, and return on assets. The report evaluates the company's profitability, liquidity, and solvency, highlighting improvements and deteriorations in these areas. It discusses the limitations of ratio analysis and offers recommendations for enhancing financial stability and profitability, including the importance of accurate financial reporting and consideration of market trends. The report concludes that the company has performed well in 2014 compared to 2013, suggesting efficient management practices and provides insights to investors. It emphasizes the need for continued monitoring and strategic financial management to sustain and improve the company's financial health.

RATIO ANALYSIS 1
RATIO ANALYSIS

RATIO ANALYSIS 2
Contents
Introduction:...............................................................................................................................3
Calculation of Ratios:.................................................................................................................3
Gross Margin Ratio:...............................................................................................................3
Current Ratio:.........................................................................................................................4
Debt Ratio:..............................................................................................................................4
Receivables Turnover Ratio:..................................................................................................4
Return on Assets:....................................................................................................................4
Conclusion and recommendation:..............................................................................................5
References..................................................................................................................................6

RATIO ANALYSIS 3
Introduction:
This report aims at discussing the various different ratios that have been calculated for the
company. It also indicates the improvements that are required to be made followed by the
conclusion and recommendations for the company. It also throws light on the limitations that
these ratios suffer from.
Calculation of Ratios:
The following table shows the calculation of ratios:
2014 2013
Ratios:
Gross profit margin: 22.65% 21.25%
Gross profit
21,96,90
0
13,37,60
0
Net Sales
97,00,00
0
62,95,40
0
Current Ratio: 1.472256 1.205005
Current Assets
46,02,20
0
37,26,90
0
Current Liabilities
31,25,95
0
30,92,85
0
Debt Ratio: 0.632834 0.729872
Total Liabilities
37,70,30
0
36,67,90
0
Total Assets
59,57,80
0
50,25,40
0
Receivables Turnover 2.46418 1.896205

RATIO ANALYSIS 4
ratio:
Annual credit sales
97,00,00
0
62,95,40
0
Accounts receivables
39,36,40
0
33,20,00
0
Return on Assets: 13.93% 3.07%
Net Income 8,30,000 1,54,500
Total Assets
59,57,80
0
50,25,40
0
Gross Margin Ratio:
The gross margin ratio is the ratio which shows the profitability of the company. This ratio
measures the way in which the company is making profit. It shows how profitable the
company us. It shows the % of profit of the net sales of the company (My accounting course,
2019).
A higher ratio indicates good performance for the company. This ratio has improved for the
company from the year 2013 which is good.
Current Ratio:
The current ratio is also termed as the working capital ratio which shows the capability of the
company to meet the short term liabilities. These are the liabilities that are of short term
nature. It shows the weight of the total current assets compared with the total amount of the
current liabilities. It shows the financial health of the company (Corporate finance institute,
2019).
A higher ratio indicates good performance for the company. This ratio has improved for the
company from the year 2013 which is good.

RATIO ANALYSIS 5
Debt Ratio:
Debt ratio is the solvency ratio which shows the % of total amount of the liabilities as the %
of the total amount of Assets. This shows the ability of the company to pay off its assets. This
is a financial leverage ratio. Higher this ratio shows riskiness of the company (My accounting
course, 2019).
The higher this ratio, the more risky the company is. This ratio has deteriorated for the
company from the year 2013 which is good.
Receivables Turnover Ratio:
This is an efficiency ratio which shows the number of times, the accounts receivables into
cash during the period of 12 months. This ratio measures the number of times the business is
able to collect the cash in terms of sales made by the company (My accounting course, 2019).
A higher ratio indicates good performance for the company. This ratio has improved for the
company from the year 2013 which is good.
Return on Assets:
This is the ratio measures the net income which has been produced by the total amount of the
assets. This ratio shows how efficiently the company is able to manage the assets and produce
in profits by the company (My accounting course, 2019).
A higher ratio indicates good performance for the company. This ratio has improved for the
company from the year 2013 which is good.
The above stated ratios helps in assessing the financial profitability of the company. These
help an investor to decide whether to invest into the company or not.
The Assets of the company have improved since the company has purchased new assets.
Also, the company has made sales during the year which are either accounts receivables or
cash, which again forms the part of assets.
This merely means that the company has been doing well and is in good hands when it comes
to managing its business operations. This of course would also mean an increase in the
amount of taxes to be paid by the company.

RATIO ANALYSIS 6
The company also needs to understand the fact that even when the amounts of the sales is
increasing, the management needs to get them audited and know the accuracy of the
correctness of these figures.
The following are the limitations of ratios:
 The companies may have different definitions of these ratios and may mean
differently to different companies.
 These ratios are based on historical information which may not be useful for the
company.
 These ratios ignores the changes that takes place in the level of the prices.
 The calculation of these ratios do not lead the management to solve problems and
issues (Toppr, 2019).
As far as the other information is concerned, the company must look out for the audit report
from the auditors of the company since they would be to assess the correctness of the figures
contained in the annual report. Also, the new ventures, investments that the company may be
for going should eb considered.
Also, the trends for sales revenue, expenses must be considered so that the future profitability
of the company can be assessed. For example, sales have improved when compared with the
previous year but so has the expenses. But the management must keep in mind that the % of
increase should be the same for both income and the expenses since that would mean lesser
profits for the company.
Conclusion and recommendation:
In the nutshell, the company has done well in the year 2014 when compared with the
previous year 2013. This shows efficiency on the part of the management.
The recommendation for the company is the fact that the company must undertake more
measures to improve its financial stability and profitability. The management needs to get
these figures reported in the financial statements in order to assess the accuracy and the
correctness of these figures.

RATIO ANALYSIS 7
References:
Corporate Finance Institute. (2019). Current Ratio Formula - Examples, How to Calculate
Current Ratio. [online] Available at:
https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/
[Accessed 13 Apr. 2019].
My Accounting Course. (2019). Accounts Receivable Turnover Ratio | Formula | Analysis |
Example. [online] Available at:
https://www.myaccountingcourse.com/financial-ratios/accounts-receivable-turnover-ratio
[Accessed 13 Apr. 2019].
My Accounting Course. (2019). Debt Ratio | Formula | Analysis | Example | My Accounting
Course. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/debt-
ratio [Accessed 13 Apr. 2019].
My Accounting Course. (2019). Gross Margin Ratio | Formula | Analysis | Example. [online]
Available at: https://www.myaccountingcourse.com/financial-ratios/gross-margin-ratio
[Accessed 13 Apr. 2019].
My Accounting Course. (2019). Return on Assets Ratio - ROA | Analysis | Formula |
Example. [online] Available at: https://www.myaccountingcourse.com/financial-ratios/return-
on-assets [Accessed 13 Apr. 2019].
Toppr-guides. (2019). Ratio Analysis: Meaning, Objectives, Advantages, Limitations &
Examples. [online] Available at: https://www.toppr.com/guides/accountancy/accounting-
ratios/meaning-objectives-advantages-and-limitations-of-ratio-analysis/ [Accessed 13 Apr.
2019].