Financial Ratio Analysis Report: Greta's Furniture Performance Review

This report presents a financial ratio analysis of Greta's Furniture Pty Ltd, a small retail business. The analysis evaluates the company's performance based on profitability, liquidity, and solvency ratios, comparing it to industry benchmarks. The report highlights areas where the business excels, such as gross profit and net profit margins, and identifies areas needing improvement, like inventory turnover. It offers strategic recommendations to enhance performance, including cost control, supply chain optimization, and strategies to improve the current ratio. The conclusion summarizes the findings and emphasizes the importance of financial ratios in assessing business health. The report provides valuable insights into the company's financial standing and suggests actionable steps for future growth.

Running head: TECHNOLOGY ACCOUNTING PROCESS
Technology Accounting Process
Name of the Student
Name of the University
Author Note:

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Table of Contents
Introduction................................................................................................................................2
Ratio Analysis............................................................................................................................2
Q1) Areas where the business did well......................................................................................3
Gross Profit............................................................................................................................3
Net Profit................................................................................................................................4
Debt Ratio..............................................................................................................................4
Q2) Areas which requires improvement....................................................................................4
Return on Equity....................................................................................................................4
Current Ratio..........................................................................................................................4
Inventory Turnover in days....................................................................................................5
Q3) The strategies which the business could implement to improve its performance...............5
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6

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Introduction
The ratio analysis of the companies provides information to the company as well as
the stakeholders regarding the performance of the company. This quantitative method
provides an insight on the company’s performance by providing efficiency, liquidity and
profit information which can be compared with the similar firms or industry.
Ratio Analysis
RATIO Greta’s Furniture Mart Furniture Bazar
Gross profit margin 78% 28% 17%
Net profit margin 52% 50% 40%
Return on equity 28% 30% 23%
Current ratio 3.10 3.74 3.79
Inventory turnover 108 103 86

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in days
Debt ratio 31% 44% 50%
The ratio analysis of the companies provides information to the company as well as
the stakeholders regarding the performance of the company. This quantitative method
provides an insight into the company’s performance by delivering efficiency, liquidity, and
profit information, which can be compared with similar firms or industries.
Q1) Areas where the business did well.
Gross Profit
The gross profit of Greta’s Furniture Pty Ltd shows how well the company is
functioning to cover sufficient operating expenses of the business and provide profit to cover
fixed expenses (Batchimeg, Bayaraa, 2017). The gross profit is derived by deducting the cost
of goods sold from the total sales.
Net Profit
The net profit is derived by deducting the total expenses of the company with the total
revenue earned, which indicates the relationship between the net profits and sales. The net

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profit ratio of Greta’s Furniture is more than other companies in this segment, which provides
more transparency regarding the effectiveness of the company to control its cost.
Debt Ratio
This ratio expresses the relationship between the total debt and total assets of the
company. It highlights the proportion of the asset that is financed by the debt of the company
(Zhang, Kexin, 2018). The ratio of the company is better than other companies in the segment
comparatively and is considered less leveraged. It also signifies that the company is stable
and has the potential to run for an extended period.
Q2) Areas which requires improvement
Return on Equity
The net income derived from the total investment made by the owners is also known
as return on equity. This ratio is a more important measure than profit ratios since it proposes
the ability of the company to generate revenues without further requirement of the capital
(Pinto, Jerald E, 2020). The return on equity of Greta’s Furniture is considered good, and the
company’s management has been successful in deploying the capital of the owner.
Current Ratio
This ratio measures the ability of the company to repay its short-term debts payable
within the period of the next 12 months. It is calculated by dividing the current asset with the
current liability of the company. The ability of the company to repay its short-term debt is
good, i.e., the company is in a desirable position to be in; however, it is lower than the other
companies comparatively.
Inventory Turnover in days
The inventory turnover ratio signifies the number of times the company has sold and
replaced its inventory during a period. Higher the rate better for the company, therefore, in

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this case, Greta’s Furniture has higher inventory turnover days when compared to its
competitors, which signifies that it takes too long for the company to sell its inventory in the
market. The sales and purchase process is paralyzed when the inventory is stuck within the
company.
Q3) The strategies which the business could implement to improve its performance.
Greta’s Furniture Pty Ltd has better performance in some segments as compared to
other companies. However, there are some areas in which the company can focus and
improve its overall performance. Thus, improvement can be made in the field of cost control
which will also enhance the net profit and subsequently improve return on equity of the
company, which is not considered as best in the market when compared to the other firms
(Schaltegger, Stefan, and Roger Burritt, 2017). The company should optimize its supply
chain, eliminate stagnant inventory and use software like CPQ that will provide accurate and
real-time price quotes, which will help in saving time and keeping track of the inventory
catalog and the profile of the client. The current ratio of the company can be improved if the
company pay off its current liability and improve the current asset by raising funds from
shareholders.
Conclusion
The report focuses on the financial ratios that highlights the performance of the
company with respect to the liquidity, profitability and solvency of the business, and
concludes with recommendation that will improve the overall performance of the business.
Reference
Batchimeg, Bayaraa. "Financial performance determinants of organizations: The case of
Mongolian companies." Journal of competitiveness 9, no. 3 (2017): 22.

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Pinto, Jerald E. Equity asset valuation. John Wiley & Sons, 2020.
Schaltegger, Stefan, and Roger Burritt. Contemporary environmental accounting: issues,
concepts and practice. Routledge, 2017.
Zhang, Kexin. "Financial Situation Assessment of the Shiseido Corporation." (2018).