Financial Analysis for Managers: Construction Company Report

This report presents a financial analysis of Alpine Construction Ltd. and Maple Builders Ltd., prepared for Taggart Transpacific Ltd. to assist in investment decisions. The analysis compares the companies' performance over two financial years (2017-2018) using eleven financial ratios, including profitability, asset utilization, financial market, working capital management, and solvency ratios. The report highlights the declining profitability of Alpine Construction, while Maple Builders demonstrates improvements. The analysis includes industry benchmarking, a solvency test for Alpine, and a discussion of the limitations of the analysis, emphasizing the need for more than two years' data for comprehensive evaluation. The report concludes with findings and recommendations for the board of directors of Taggart Transpacific Ltd.

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DIPLOMAINBUSINESS&ENTERPRISE MANAGEMENT(L7)
FINANCIALANALYSISFORMANAGERS
UNIT11624-
DEMONSTRATEANDAPPLYKNOWLE
DGEOF FINANCIALANALYSIS (V8)
(10 CREDITS,L5)
&
UNIT9685-
WRITEANANALYTICALREPORT (V7)
(5 CREDITS,L5)
ASSESSMENT2:A SSIGNMENT/R EPORT
DUE:26/06/2018
Date of
Submission:
25/06/18
Name:Keyur Solanki
Student ID:181003C
Tutor: Bryce Hartel and Aimen Ubaid
Keyur solanki: 181008C

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Executive summary
This report deals with an overall financial analysis of the two companies named as Alpine
Construction Ltd. and Maple builders Ltd. The report is been prepared for the board of
directors and owners of Taggart Transpacific Ltd. in order to advise and assist them regarding
their investment decisions. The two companies are situated in the different locations of New
Zealand. The report contains a detail analysis of companies’ performance by evaluating 11
financial ratios for the two financial years. This analysis will eventually help the board of
directors of TT to decide which company is doing well and whose performance is been
improved over the years. In the last, findings are been presented with the final conclusion.
From the analysis, it can be observed that the profitability ratios of Alpine Constructions have
been decreased from 2017 to 2018. Such as its GPR reduces from 75% to 60% over the years,
net profit margin falls to 13.11% from 22.5%; return on assets was reported at 64.74%,
showing a reduction of 60.71%. On the other hand, the ratios of Maple Builder have shown
an upsurge during the same financial year. Its gross profit ratio shows an increase of 10.01%
and net profit margin goes up by 3.68%. The same trend follows in Asset utilization ratios,
financial market ratios and working capital ratios. As far as solvency ratios are concerned, a
reduction is been there in case of both the companies.
In this report, the financial analysis of both the companies is performed and their position and
performance is compared to the industry standard. Considering the profitability ratios, two
ratios of Alpine are match with the industry benchmarks but are decreasing whereas Maple
does not match to the standard but its ratios are improving over the years. However, the scene
remains same for other ratios in case of both the companies. Apart from this, a solvency test
is also done on Alpine to check that whether the company is capable of paying its debt and
other obligations or not. In addition, some limitations of the analysis are also highlighted in
the report. For instance, investors can not only decide on the basis of two years data and these

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ratios are not sufficient to judge a company’s position and performance. From this analysis,
investors can only figure out one thing that Alpine’s ratios has decreased over the years and
Maple’s numbers have increased.
Contents

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Executive summary....................................................................................................................2
1.0...............................................................................................................................................5
1.1 Profitability.......................................................................................................................5
Gross profit ratio.................................................................................................................5
Net profit ratio....................................................................................................................6
Return on Total Asset.........................................................................................................6
1.2 Working capital management...........................................................................................7
Current ratio........................................................................................................................7
Quick ratio..........................................................................................................................8
1.3 Asset utilization................................................................................................................8
Accounts receivables turnover ratio...................................................................................8
Inventory turnover ratio......................................................................................................9
1.4 Financial markets..............................................................................................................9
Earnings per share...............................................................................................................9
Dividend per share............................................................................................................10
1.5 Solvency.........................................................................................................................11
Debt to assets ratios..........................................................................................................11
Debt to equity ratio...........................................................................................................11
1.6 Industry Benchmarking..................................................................................................12
2 Conclusions...........................................................................................................................13
3 Recommendation...................................................................................................................14
3.1 Which company to Divest from.....................................................................................14
3.2 Suggestions for improvements.......................................................................................15
4.0.............................................................................................................................................15
4.1 Solvency Test.....................................................................................................................15
4.2 Conclusion......................................................................................................................16
5 Limitation & Variations........................................................................................................16

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5.1 Limitations......................................................................................................................16
5.2 Variations for different users..........................................................................................16
6.0 Appendix 1:........................................................................................................................17
6.1 Report Planning..............................................................................................................17
6.2 Purpose...........................................................................................................................17
6.3 Audience.........................................................................................................................17
6.4 Scope..............................................................................................................................17
6.5 Structure of the report.....................................................................................................18
7.0 Appendix 2.........................................................................................................................19
References................................................................................................................................20
List of Tables
Table 1: Gross Profit Ratio........................................................................................................4
Table 2: Net Profit Margin.........................................................................................................4
Table 3: Return on Total Assets.................................................................................................5
Table 4: Current ratios...............................................................................................................5
Table 5: Quick ratio...................................................................................................................6
Table 6: Accounts Receivables turnover ratio...........................................................................6
Table 7: Inventory Turnover ratio..............................................................................................6
Table 8: Earnings per share........................................................................................................7
Table 9: Dividend per share.......................................................................................................7
Table 10: Debt to total asset ratio..............................................................................................7
Table 11: Debt to equity ratio....................................................................................................8
Table 12: Industry Benchmarking..............................................................................................9
Introduction

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Taggart Transpacific Ltd. is a New Zealand based company which is engaged in supply and
manufacturing of building materials to the construction companies. Due to the increase
competition and to enhance its competitive advantage, the company is looking forward to
purchase a controlling interest in the construction company for securing and ensuring its
future demand. The companies chosen are Alpine Constructions and Maple Builders, which
are core construction companies operating in different locations of New Zealand. In order to
invest and purchase the interest, TT wants to know the performance and position of both the
companies by conducting a detailed financial analysis with help of useful ratios. Financial
data is been provided by TT Ltd and the analysis is done for the year 2017 and 2018. The
ratios calculated are profitability, asset utilization, financial market, working capital
management and long-term financial stability ratio. Furthermore, a solvency test is also done
by using the dividend payment and the limitation of the analysis is been explained at the end
of the report.
1.0
1.1 Profitability
Gross profit ratio
It is a financial ratio which identifies the company’s financial health and the amount of profit
made by the company out of total revenue after doing the calculations of cost of goods sold.
GPR is also known as gross profit margin and is presented in form of percentage of total sales
(Barman & Sengupta, 2017).
Company 2017 2018 % change Industry
standard %
Alpine 75% 60% - 15%
60%
Maple 45.01% 55.02% 10.01%
Table 1: Gross Profit Ratio

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From the above table it can be observed that the GPR of Alpine in 2017 was 75% and of
Maple was 45.01% followed by 60% and 55.02% in year 2018 respectively. Alpine’s GPR is
reduced by 15% whereas Maple’s GPR increases by 10.01%.
To illustrate these changes, in Alpine Construction Ltd. total sale is decreased by 16.78 %
and so we can see a noticeable 33.43 % drop in the gross profit. In the year 2018 Alpine
construction Ltd. paid $ 1, 43,000 import duties which are 183.17 % higher than previous
year. So, import duties are the major affecting factor.
In case of Maple Builders Ltd., the total sale is improved in the year 2018 by 10.59 % and so
there gross profit is increased by 35.17 % which is very much remarkable.
At the end, as per the Industry standard, Alpine Construction Ltd. is in good position because
their current GRP is 60 % which is same as Industry standard but it is also clear that Maple
Builders Ltd. has not achieved the standard yet but it is gradually improving.
Net profit ratio
It is also known as net margin and is a financial analytical ratio which is also expressed as a
percentage of total revenue. It shows the amount of total sales earned as a profit after paying
all the operating and non-operating expenses. Higher the ratio, higher will be the profitability
(Bragg, 2012).
Company 2017 2018 % change Industry
standard %
Alpine 22.5% 13.11% - 9.39%
20%
Maple 6.76% 10.44% 3.68%
Table 2: Net Profit Margin
It is observed that the NPR of Alpine has reduced by 9.39% over the past two years. In 2017,
the ratio was 22.5% and the same was reported at 13.11% in 2018. On the other hand,
Maple’s NPR was 6.76% in 2017 which increased to 10.44% in 2018 showing a rise of
3.68% over the years. If compared, Alpine has more net profit. The industry standard is

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reported at 20% and the NPR of Alpine was more than this benchmark in 2017. However, the
ratio of Maple does not match with the industry standard.
There is a drastically decrease in the net profit of Alpine Construction Ltd. which is over 50
%. While, in the Maple Builders Ltd. there is a noticeable improvement in the sales so the net
profit of this company is increased by 70.83 %. Still the Alpine Construction Ltd. is more
favourable company.
Return on Total Asset
ROTA is also a profitability ratio which measure company’s earnings before interest and tax
against its total assets. It basically gives insights to management about how much money is
made from each dollar invested in the company. This enables the managers to understand the
relationship between the company’s resources and its income (Godwin & Alderman, 2012).
Company 2017 2018 % change Industry
standard %
Alpine 125.45% 64.74% - 60.71%
36%
Maple 36.73% 57.72% 20.99%
Table 3: Return on Total Assets
The analysis shows that alpine faced a huge fall in its Return on total assets ratio as in 2017
the ratio was 125.45% which reduces to a great extent and reached to 64.74% in 2018. On the
other side, Maple’s ROTA has increased over the time period. It was 36.73% in 2017 and
57.72% in 2018 showing an overall increase of 20.99% during the period. It can be
interpreted that Alpine is capable of generating more returns from its assets as compared to
Maple builders. Moreover, both the companies meet their industry standard. The reason for
the change in ratios is the change in net income whereas total assets remain the same.

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1.2 Working capital management
Current ratio
It is the most popular liquidity ratio which shows the relationship between the current assets
and current liabilities of the company. It basically identifies company’s ability to meet all its
short-term financial obligations with its current assets. The ideal current ratio is 2:1 which is
required to be maintained by the companies (Leach, 2010)
Company 2017 2018 change Industry
standard
Alpine 2.4:1 2.19:1 - 0.21:1
2:1
Maple 1.87:1 1.88:1 0.01:1
Table 4: Current ratios
The above table shows the current ratio of both the companies. For Alpine, in year 2017 the
ratio was 2.4:1 which reduces to 2.19:1 in 2018 ,still achieves benchmark whereas for Maple,
the ratio was 1.87:1 in 2017 and the same in 2018 is reported at 1.88:1. Though Maple’s ratio
has increased but it is less than the ratio of Alpine and is also less than the industry average.
The reason for the change in the CR is the upsurge of 16.67% in Alpine’s current assets and
reduction of 3.47% in Maple’s current assets from 2017 to 2018.
Quick ratio
It is also a liquidity ratio which indicates the financial health of a company by measuring its
most liquid assets against its current liabilities. In other words, it shows the potential of an
organization to meet all its short term obligations with its quick assets such as cash, debtors
and accounts receivables. The ideal ratio is 1:1 ( Lee , Lee , & Lee, 2009).
Company 2017 2018 change Industry
standard

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Alpine 0.5:1 0.3:1 - 0.2:1
1:1
Maple 1:1 1.11:1 +0.11:1
Table 5: Quick ratio
From the above table, it can be seen that Alpine’s QR is lower than Maples and from the
industry average. Moreover, it ratio has also decreased in year 2018. For Alpine, in 2017 the
ratio was 0.5:1 and in 2018 the ratio was 0.3:1. On the other hand, Maple had a ratio of 1:1 in
2017 and the same in 2018 is 1.11:1, showing an increase of 0.11:1 in the ratio. The main
reason for having a better quick ratio in case of Maple Builders is the less amount of
inventory recorded in 2018. On other hand, in case of Alpine, the inventories increase by
39.15% in 2018. Comparing with the industry standard, Maple’s QR is very close to it and
Alpine’s ratio is still far from the benchmark.
1.3 Asset utilization
Accounts receivables turnover ratio
It is an activity ratio which measures the efficiency of the firm in utilizing its assets. It shows
how effectively and efficiently a company collects its debtors. A high ARTR means company
is quite efficient in managing its credit given to the customers and is generally operates on
cash basis (Tracy, 2012).
Company 2017 2018 change Industry
standard
Alpine 68.64 times 46.13 times -22.51 times
50 times
Maple 24.65 times 31.47 times 6.82 times
Table 6: Accounts Receivables turnover ratio
For the year 2017, Alpine’s A/R ratio was 68.64 times which reduces to 46.13 times in 2018.
It shows a change of -22.51 times during the year. While, in case of Maple the ratio was

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24.65 times in 2017 which increases to 31.47 times in 2018. However, Maple’s ratio shows
an increase of 6.82 times over the years. The reason Maple’s ratio is not close to industry
standard is the lower amount of sales company made during the year. Whereas, Alpine
Construction had a ratio above than the benchmark in 2017 but the same reduces to a great
extent in 2018. The reason for high ratio in the past is the good amount of sale made by the
firm.
Inventory turnover ratio
This ratio determines the number of times a company has sold and converts its inventory into
cash over the period. A high ITR is favourable for the companies and it is calculated by
dividing the sales with average inventory (Weygandt, Kimmel, & Kieso, 2009).
Company 2017 2018 change Industry
standard
Alpine 3.20 times 3.47 times 0.27 times
6.2 times
Maple 7.10 times 7.75 times 0.65 times
Table 7: Inventory Turnover ratio
It can be seen from the above table that Maple has high ITR than Alpine. In 20117 its ratio
was 7.10 times which increases to 7.75 times in 2018. This is due to the significant reduction
in company’s inventory from 125,000 to 103,000 during the year. Whereas, Alpine’s ITR
was reported at 3.20 times in 2017 and 3.47 times in 2018. The inventory turnover of Maple
is better because its ratio is higher than the industry average and is also more than that of
Alpine. Alpine did not reach industry standard. The industry standard is 6.2 times and is only
maintained by Maple Builders. Alpine could not maintain it because of its high inventory in
2018 and its COGS has also increased by 33.18% during the year.

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1.4 Financial markets
Earnings per share
This ratio indicates company’s profitability and is considered as a part of profit of company’s
profit divided among the each outstanding share of the common stock (Jenter & Lewellen,
2011).
Company 2017 2018 change Industry
standard
Alpine $29.70 $14.40 -$15.3
$2.28 per share
Maple $1.50 $2.56 $1.06
Table 8: Earnings per share
EPS for Alpine was $29.70 in 2017 and $14.40 in 2018 and for Maple, the ratio was $1.50 in
2017 which increases to $2.56 in 2018 showing a rise in EPS of $1.06 per share. The reason
for having such low EPS is that the company has issued more number of shares as compare to
Alpine. Furthermore, the industry benchmark is $2.28 per share which is been maintained by
both the companies and Alpine has a higher ratio than the benchmark.
Dividend per share
This ratio shows the amount of dividend issued by the company for every outstanding share.
The amount of dividend paid also includes interim dividend and the ratio is calculated by
dividing total dividend with the number of ordinary shares issued (Jindal, Jain, & Vartika,
2017).
Company 2017 2018 change Industry

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standard
Alpine $23.76 $11.52 -$12.24
$1.40 per share
Maple $0.75 $1.28 $0.53
Table 9: Dividend per share
For the year 2017 and 2018, Alpine has a ratio of $23.76 and $11.52 respectively. On the
other hand, Maple has a ratio of $0.75 in 2017 and $1.28 in 2018 showing an increase of
$0.53 per share. Maple shows a rise in its DPS against the industry standard of $1.40 per
share. Despite of decreasing ratio of Alpine, Alpine still is quite higher than benchmark.
Alpine has high ratio because it has paid out more dividends in 2018 worth $230,400 as
compare to the amount paid out by Maple that is $102,500 in the same year.
1.5 Solvency
Debt to assets ratios
This ratio indicates the total amount of debt in relation to assets. It basically shows the
amount of leverage taken by the companies (SHARAN, 2015)
Company 2017 2018 % change Industry
standard %
Alpine 75.03% 66.37% -8.66%
80%
Maple 63.64% 49.24% -14.4%
Table 10: Debt to total asset ratio
From the above table, it can be observed that Alpine had 75.03% debt to asset ratio in 2017
and in 2018 the ratio is reported at 66.37%. For Maple, the ratio was 63.64% in 2017 and
49.24% in 2018. Both the companies show a decrease in their Debt to total asset ratio and
achieves their industry average of 80%. Debt to assets is lower the better. Moreover, both of
them are not close to the benchmark of industry. It can be seen that Maple has paid out more
of its debt in 2018 which brings a significant reduction in its ratio. On the other hand, Alpine

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has also paid out some of its debt in the same year but still has a high ratio than its
competitor.
Debt to equity ratio
It is also one of a solvency ratio which is used to measure the financial leverage of any
company. It shows the proportion of companies’ short term and long term debt against its
equities (Rakićević, Milošević, Petrović, & Radojević, 2015).
Company 2017 2018 % change Industry
standard %
Alpine 300.56% 197.33% -103.23%
150%
Maple 175% 97.02% -77.98%
Table 11: Debt to equity ratio
The above table shows the debt equity ratio for both the construction companies. It can be
observed that D/E ratio of Alpine was 300.56% in 2017 which reduces to 197.33% in 2018.
While on the other side, Maple had a D/E ratio of 175% in 2017 which also reduces to
97.02% in 2018. The standard is set at 150% but Alpine’s ratio was way more than that in
2017. This is due to the decrease in company’s liability by 16.14% and increase in its equity
by 51.25%. Similarly, Maple has also reduced its liabilities to 13.10% and increased its
equity to 32.35% which has a direct impact on its ratio. Currently both the companies has
ratio less than the industry average of 150%.
1.6 Industry Benchmarking
Alpine
Construction
Ltd.
Maple
Builders
Ltd.
Industry
standard
Better
Name of Ratio 2018 2018

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Profitability Ratios
1) Gross profit 60% 55.02% 60.00 % Alpine
Construction
Ltd.
2) Net profit 13.11 % 10.44% 20.00 % Alpine
Construction
Ltd.
3) Return on Total
Assets
64.74 % 57.72 % 36.00 % Alpine
Construction
Ltd.
Asset Utilization Ratios
1) Inventory
Turnover
3.47 times 7.75 times 6.2 times Maple Builders
Ltd.
2) Accounts
receivable
turnover
46.13 times 31.47 times 50 times Alpine
Construction
Ltd.
Financial Markets Ratios
1) Earnings per
share
$14.40 $2.56 $2.28/Share Alpine
Construction
Ltd.
2) Dividends per
share
$11.52 $1.28 $1.40/Share Alpine
Construction
Ltd.
Solvency Ratios
1) Debt to Total
Assets
66.37 % 49.24 % 80.00 % Maple Builders
Ltd.
2) Debt to Equity 197.33 % 97.02 % 150.00 % Maple Builders
Ltd.

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Working Capital Management Ratios
1) Current Ratio 2.19:1 1.88:1 2:1 Alpine
Construction
Ltd.
2) Quick Ratio 0.3:1 1.11:1 1:1 Maple Builders
Ltd.
Table 12: Industry Benchmarking
The above table shows the different financial ratios used for Alpine constructions and Maple
Builders to measure and evaluate their performance and position against several industry
benchmarks for the year 2018. Starting with the gross profit margin, Alpine has the high GPR
of 60% than Maple and which is equal to the industry benchmark. The same goes with the
Net profit and return on total assets. Alpine has high ratios as compared to Maple and also it
ROTA is 64.74% in 2018 which is way more than the industry average of 36%.
When it comes to inventory turnover, Maple outperforms having 7.75 times of ITR more than
that of Alpine and industry benchmark. But talking about accounts receivable, Alpine has a
high ratio of 46.13 times almost close to the industry standard. Earnings per share and
dividend per share of Alpine constructions is $14.40 and $11.52, more than Maple’s ratio and
higher than the benchmark. However working capital management ratios are in favour of
Maple and not in Alpine.
2Conclusions
From the above financial analysis, conclusion about the five calculated ratio categories can be
made which compares both the construction companies. The performance is compared for the
years 2017 and 2018. The comparison for 2018 is done in the above table with the industry
benchmark. Now, here the performance is compared over the two years of both the
companies. It is observed that GPR of Alpine has reduced by 10% where the GPR of Maple
has increased by the same percentage. Talking about NPR and return on total assets, Alpine

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has faced a decrease of 9.39% and 60.71% respectively whereas the trend is reversed in case
of Maple Builders and the ratios are increased by 3.68% and 20.99% respectively ( Bragg,
2012)
Talking about liquidity ratios, both are reduced in case of Alpine Constructions and are
increased in case of Maple Builders. The growth in Maple’s ITR is 0.65 times which is more
than that of Alpine’s ITR growth by 0.27 times. Also in Accounts receivable turnover ratio,
Alpine faced a decrease 22.51 times in the ratio whereas Maple has shown an increase of 6.82
times in its A/R ratio. Earnings per share is higher for Alpine though shown a reduction of
$15.3 per share during the period. The same trend followed in Dividend per share of Alpine
which reduces by $12.24 per share. However, in case of Maple, the ratios have shown
increase of $1.06 and $0.53 respectively. As far as debt to total assets and debt to equity
ratios are considered, both the companies have shown a significant reduction in the ratios.
However, the decrease in Alpine’s ratios are more than that of Maple’s ratio (Charles , 2011).
So overall, it can be concluded that though Maple Builders’ ratios are less in figure but the
company is performing better than Alpine and is shown an increasing and positive trend in its
performance.
3Recommendation
3.1 Which company to invest
It can be said that both the companies are doing good and bad in some sectors. Both have
good turnover and should focused on improving their performance. As the improvement is
been concerned, Maple Builders is entirely focused on enhancing its performance and has
increased it over the years. Unlike Alpine Constructions, the company has shown a
continuous growth in all the aspects and has reflected a positive trend in its performance.
However, its ratios are less than that of Alpine but have increased over the years. So, as per
the analysis, it is concerned TT ltd should invest in Maple Builders.

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3.2 Suggestions for improvements
Following steps must be taken by Maple Builders Ltd to remain in a good financial position.
 Maple Builders need to focus on their sales and improve their turnover which will
eventually enhance the profitability of the company and its financial position.
 They have to increase their accounts receivables and should focus on improving their
asset utilization. Maple should focus on increasing its efficiency for making timely
collection of its debtors (Higgins , 2012).
 Maple should focus on reducing its portion of debt and must enhance equity financing
in the business. They need to increase their earning and have to pay dividends
regularly to their shareholders in order to increase financial market ratio.
4.0
4.1 Solvency Test
The capability of an organization to pay its financial obligations is measured by taking a
solvency test. Solvency is very much important for the business and its insufficiency may
lead to bankruptcy. According to the Companies Act, both the companies are required to pass
this solvency test to prove their profitability and account receivable.
A) Maple Builders Ltd. Liquidity Test
Current asset Ratio: current asset/current liabilities + rent
Current assets = $280,000
Dividend = $50,000
Current assets – dividend = $280000 - $50,000 = $230,000
Current liabilities = $149,000
Rent = $40,000

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Current liabilities + rent = $149,000 + $40,000 = $189,000
= $230,000/$189,000
= 1.22:1 > 1
The result is more than one which shows that Maple Builders Ltd. has passed the liquidity
test.
B) Balance Sheet Test
Debt to asset ratio = (Total asset – dividend)/Total Liabilities + rent
Total assets = 596,000 - 50000
= $546,000
Total Liabilities = $293,500 + $40,000
= $333,500
Debt to Total asset ratio = ($333,500/$546,000) x 100
= 61.08% (Pass)
From the above test it is clear that the total assets of Maple Builders are more than its total
liabilities, so the company can easily pay off its debt with its assets. Hence, it has passed the
balance sheet test also.
4.2 Conclusion
The above solvency test concluded that Maple Builders Ltd. has successfully passed both the
liquidity and balance sheet test. It has a greater solvency position and is able to meet its
liabilities.

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.
5Limitation & Variations
5.1 Limitations
Following are the limitations of this analysis:
 Difficult to measure accurate results as the data is available for two years only.
 The inflation rate is high for both the companies for both years.
 Details given are not well explained.
 Qualitative methods cannot be applied.
5.2 Variations for different users
Owners of the company need this report for taking important decisions related to their
investments. Moreover they can measure the performance of the companies and build up their
strategy accordingly so that they can make a sustainable business. Managers are the key
persons of the organization and also have the power to take important and crucial decisions
related to the functioning of organization. For this purpose, they need accurate analysis of
balance sheet and profit and loss statement ( SINHA, 2012). Employees need to know about
the financial position of the company to identify that whether the employer can increase their
pay and make their job secure or not. They can also be interested in knowing company’s
expansion plans and scope for the same. Apart from them, creditors also look for the financial
statements of a company to have an idea about its credit worthiness. By critically analysing
its position, creditors came to know about its capability of making repayments for its
borrowings.

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6.0 Appendix 1:
6.1 Report Planning
Planning of the report is the most time consuming task of this whole report and is very
important step while preparing such report. If the planning is not done properly then the
report will not meet the set objectives.
6.2 Purpose
TT Ltd. board of directors and owners want to review the financial performance of two
construction companies namely Alpine Constructions and Maple builders. They wanted to
conduct such analysis for taking their investment decision related to the purchase of
controlling interest in one of these positions. Another purpose is to provide the data on
financial position and performance of both the companies and comparing the same.
6.3 Audience
The main audience of this report are the board of directors and owners of TT Ltd. Being a
primary document; it provides the financial scenario of both the construction companies.
6.4 Scope
Financial reports are generally prepared with a purpose of evaluating a company’s financial
position. Management use these reports to plan effectively and to take correct decisions
regarding the concerned business. The information provided by financial reports is very much
useful as it helps in establishing control over the available resources and to measure the
overall performance of the company. This report provides the financial analysis of Alpine and
Maple by using the following methodology.
 Profitability ratios: these ratios generally reflect the profitability position of a
company which eventually gives an idea about the efficiency and overall performance
of the business ( Vogel, 2014).

22
 Asset Utilization ratios: they measure the efficiency of a company in maintaining and
utilising its resources and assets. It shows how efficiently a company uses its assets to
generate revenue (Warren & Jones, 2018).
 Financial market ratio: these ratios are generally used by stock analyst as they indicate
the performance of company’s stock over the years. They evaluate the current market
price of company’s share and its ability to make more profits (Zainudin & Hashim,
2016).
 Solvency ratios: they identify the ability of an organization to meet its long term
financial obligations timely. Such ratios indicate that whether the company is able to
generate cash flows and meet its short and long term debt (Vogel, 2014).
 Working capital management ratios: these ratios basically monitor the liquidity
position of the company. Current assets and current liabilities are the elements of
working capital and such ratios measure company’s ability to meet its current
liabilities with its current and quick assets ( Saleem & Rehman, 2011).
6.5 Structure of the report
 Cover page
 Executive summary
 Table of contents
 Introduction
 Analysis and findings
 Conclusion
 Recommendation
 Limitations
 References
 Appendix 1

23
 Appendix 2
7.0 Appendix 2

24
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