Financial Accounting Report: Financial Analysis of The Snow Company

This financial accounting report provides a detailed analysis of The Snow Company's financial performance. It begins with an introduction discussing the factors influencing business choices and sustainability. The report then computes and analyzes key financial ratios, including return on assets, return on investment, profit margin, current ratio, debt ratio, asset turnover ratio, and receivables turnover ratio. A comparison chart highlights the changes in these ratios over two years. The report also addresses business questions related to the company's structure and recommendations for promoting the business. The analysis reveals insights into the company's efficiency, profitability, and financial leverage, drawing conclusions about the company's overall financial health and providing a comprehensive understanding of its financial position.

Running Head: Financial Accounting 0
the Snow
RATIO ANALYSIS
Financial Accounting
Name of the Author

INTRODUCTION TO ACCOUNTING
1
Table of Contents
Introduction...........................................................................................................................................1
Computation of the summary of the financial statement........................................................................1
Return on Asset Ratio........................................................................................................................4
Return on Investment.........................................................................................................................5
Profit Margin.....................................................................................................................................5
Current Ratio.....................................................................................................................................5
Debt ratio...........................................................................................................................................6
Asset turnover Ratio..........................................................................................................................6
Receivables Turnover Ratio...............................................................................................................7
Business Questions................................................................................................................................7
Answer to Question 1........................................................................................................................7
Answer to Question 2........................................................................................................................8
Answer to Question 3........................................................................................................................9
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

INTRODUCTION TO ACCOUNTING
2
Introduction
The choice of business of the company depends upon the firm structure, type of
business and which promoters should undertake on the basis of internal and external factors.
In this report financial analysis and business sustainability of company. It observed that
promoters needs to analysis whether the starting up new business will be as per the
requirement of the curt and Simon.
Computation of the summary of the financial statement
COMPUTATION OF RETURN ON
ASSETS
COMPUTATION OF RETURN ON
INVESTMENT
PARTICULARS AMOUNT PARTICULARS AMOUNT
NET INCOME 158897.28 TOTAL INCOME 158897.28
INTEREST EXPENSE 15194.7 TOTAL EXPENSE 111188.08
TAX RATE NET PROFIT 47709.2
TOTAL ASSETS 375838.92 TOTAL ASSETS 375838.92
RETURN ON ASSETS
NET
INCOME/
TOTAL
ASSETS
RETURN ON
INVESTMENT
NET PROFIT/
TOTAL
ASSETS
0.42 13%
COMPUTATION OF PROFIT MARGIN COMPUTATION OF CURRENT

INTRODUCTION TO ACCOUNTING
3
RATIO
PARTICULARS AMOUNT PARTICULARS AMOUNT
NET INCOME 158897.28 CURRENT ASSETS 14990.17
NET SALES 158015.36
CURRENT
LIABILITIES 11785.12
PROFIT MARIGN
NET
INCOME/
NET SALES CURRENT RATIO
CURRENT
ASSETS/CURR
ENT
LIABILITIES
101% 1.27
COMPUTATION OF RECIEVABLES
TURNOVER RATIO COMPUTATION OF DEBT RATIO
PARTICULARS AMOUNT PARTICULARS AMOUNT
NET SALES 158015.36 TOTAL DEBT 230976.79
TOTAL RECIEVABLES 7522 TOTAL ASSETS 375838.92
RECIEVABLES
TURNOVER RATIO
NET
SALES/TOTA
L
RECIEVABL
ES DEBT RATIO
TOTAL
DEBT/TOTAL
ASSETS
21.0 61%

INTRODUCTION TO ACCOUNTING
4
COMPUTATION OF ASSET TURNOVER
RATIO
PARTICULARS AMOUNT
NET SALES 158015.36
ASSETS AT THE
BEGINNING
ASSETS AT THE END
AVERAGE TOTAL
ASSETS 7522
RECIEVABLES
TURNOVER RATIO
NET
SALES/TOTA
L
RECIEVABL
ES
21.0
COMPARISON CHART
PARTICULARS
201
6 2015
RETURN ON ASSETS 42% 9%
RETURN ON INVESTMENT 13% 27%
PROFIT MARGIN 30% 28.70%

INTRODUCTION TO ACCOUNTING
5
CURRENT RATIO 1.27 0.97
RECIEVABLES TURNOVER RATIO 21 15.87
DEBT RATIO 61% 57%
ASSET TURNOVER RATIO 0.42 0.37
Return on Asset Ratio
It is analyzed that the return on assets determines the company’s efficiency to deploy funds in
the business to create more return on investment. This ratio is computed to analysis the
industry in which company is working.
The return on assets in the previous year was 9% which decreased in 4%. Company has
created value on its investment.

INTRODUCTION TO ACCOUNTING
6
Return on Investment
Return on investment has also increased which shows that company has crated value on its
investment since last one year. It is calculated by using the formula net profit/ net
investment. The calculation of thee ROI has shown that company normally expects 15% but
after analysing the detail, it could be inferred that company is having only 13% return on
investment which is low as compared to last year data1
Profit Margin
The net profit ratio of company has increased. It is observed that higher net profit margin
reflects that company has higher profitability and consistently creating value on the
investment. The Snow Company in previous year has 28.7% net profit margin which
increased by 2% and resulted to 30% net profit margin. The increase in the net profit margin
shows the positive indicator for the organization 2
Current Ratio
The current ratio shows company’s ability to pay off its short term an long term debts out of
the current assets. It reflects the extent to which it could meet its libiliteis. The idea current
ratio should be 2:1. However, after analysing the data of Snow company, it is inferred that the
current ratio of company is 1.27 in current year which is .30 times higher as compare to last
1 Brigham, Eugene F., et al. Financial Managment: Theory And Practice, Canadian Edition.
Nelson Education, 2016.
2 Davidson, Paul. "Finance, funding, saving, and investment." Journal of Post Keynesian
Economics 9.1 (1986): 101-110

INTRODUCTION TO ACCOUNTING
7
year data. It shows that company has created good value of investment in its business and
consistently meting the targets 3
Debt ratio
The debt ratio of company reflects the relation between the debt and equity portion of
company. It is observed that debt ratio is calculated by dividing the total debts with the total
assets. It indicates the financial leverage which company is managing in its business 4
After analysing the details, it could be inferred that the debt ratio of company has increased to
61% which is 13% higher as compared to last year data. It shows that company has increased
its financial leverage with a view to reduce the cost of capital of company
Asset turnover Ratio
The assets turnover ratio reflects company’s measurement to value of its sales with respect to
the invested capital in the assets. It shows company’s efficiency to deploy funds in business.
The asset turnover ratio measures the value of the sales of the company with respect to the
value of the assets. The higher assets turnover ratio reflects company better ability to perform
in market. IT is analysed that Snow Company has 0.42 times assets turnover ratio which
is .o5 times higher as compared to last year data.5
3 Kaya, D. and Koch, M.,. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research, 2015., 45(1), pp.93-120
4 Zainudin E F, Detecting fraudulent financial reporting using financial ratio, (2016) 14(2)
Journal of Financial Reporting and Accounting 266, 270.
5 Shai Levi and Benjamin Segal, The Impact of Debt-Equity Reporting Classifications on the
Firm's Decision to Issue Hybrid Securities, (2017) 24(2) European Accounting Review 801,
815.

INTRODUCTION TO ACCOUNTING
8
Receivables Turnover Ratio
The receivable turnover ratio shows how well The Snow Company has managed its cash
blockage by adjusting receivables. The previous year receivable turnover ratio shows that
company has increased its Receivables turnover ratio to 21 times which is 6 times higher as
compared to last year data
Business Questions
Answer to Question 1.
The choice of business of the company depends upon the firm structure, type of business and
size which company needs to undertake for running the business effectively. In this case,
Kurt and Simon both were sole traders and were having fixed and variable cost in their
busienss. The main offered proposed by the Simon for the bike club was undertaken to cut
down the cost of both parties6 It is evaluated that if these both traders continue as sole traders
and then the bifurcation of the cost will be done accordingly between both parties for
instance, camping and equipment is to be borne by Simon itself and the cost of lodging and
food expenses is to be borne by Kurt itself. Due to this the visitors will get scattered at time
and this will create hassle. The form of the partnership which has been undertaken by Simon
and Kurt will be limited7 these both parties will have separate ownership and management.
If in case company is formed then the ownership could be transferred by transferring the
shares to others. However, incorporate the company will requires complex legal compliance
6
7 Vogel H L, Entertainment industry economics: A guide for financial analysis (Cambridge
University Press, 2014), 33,54

INTRODUCTION TO ACCOUNTING
9
which may increase the complexity and increased cost of the process. It is further observed
that if these both partners undertake the partnership then it will eventually increase the overall
outcomes and reduce the legal compliance.
Selection of the form of corporate
It is advisable for both of them to undertake the partnership firm to start up mutually agreed
business. In this partnership all the right and liabilities will be determined on the basis of the
agreement made by both parties on the mutual understanding8
Answer to Question 2
There are several formalities which need to be complied by both parties before commencing
the Adventure tours business.
 Registration of the company and incorporation rules and regulations will be followed.
 Determination of the types of corporation such as partnership and limited partnership
and company9
 Financial contributions for the funding and appreciation of the business.
 Name of the companies and corporate objectives.
 The directors list and partnership program
8 Penman S H, Reggiani F, Richardson S A, and Tuna I, (2018) An accounting based model
12(3) A Framework for Identifying Accounting Characteristics for Asset Pricing Models, with
an Evaluation of Book-To-Price 112, 125.
9 Gitman, Lawrence J., Roger Juchau, and Jack Flanagan. Principles of managerial finance.
Pearson Higher Education AU, 2015.

INTRODUCTION TO ACCOUNTING
10
Answer to Question 3.
There are several recommendations have been given to promote the Adventure tours business
 Use of digital media and online promotional program.
 Publishing brochures and pamphlets for the off line promotion.
 Advertisement in article an newspapers
 Use of survey methodology and sample survey to customized the products and services as
per the client’s needs.
 Giving attractive offers and discounts to new members to take services from our
organization 10
Conclusion
The form of the partnership which has been undertaken by Simon and Kurt will be
limited. If they want to implement the effective business in long run then they will have to
analysis all the positive and negative factors for implementing the effective strategic
program.
10 Haselhuhn, Michael P., Margaret E. Ormiston, and Elaine M. Wong. "Men’s facial width-
to-height ratio predicts aggression: A meta-analysis." PLoS One 10.4 (2015): e0122637.