Accounting and Financial Management: Ratio Analysis and Interpretation

This report focuses on accounting and financial management, specifically using ratio analysis to assess a company's financial performance and position. The analysis involves calculating various financial ratios, including profitability, liquidity, and solvency ratios, based on provided financial statements (statement of comprehensive income and statement of financial position). The report compares the calculated ratios with industry averages to interpret the company's performance and identify potential areas for improvement. The student reflects on the unit, highlighting the advantages and limitations of ratio analysis and the importance of using multiple tools for a comprehensive financial assessment. The report also includes a reflection on the application of ratio analysis and its benefits in understanding financial statements, along with references to relevant academic sources.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
Part A...............................................................................................................................................2
Ratio Analysis..............................................................................................................................2
Interpretation................................................................................................................................3
Part B...............................................................................................................................................4
Advantages and Limitations of Ratio Analysis...........................................................................4
Part C...............................................................................................................................................5
References........................................................................................................................................6

2ACCOUNTING AND FINANCIAL MANAGEMENT
Part A
Particulars Company Industry Interpretation
Cost of Goods Sold 2864000
Average Inventory 715200
Inventory Turnover 4.00 4.05
Revenue 3432000
Accrued Expenses 136000
Activity Ratio 25.24 2.66
Revenue 3432000
Non-Current Assets 463620
Fixed Asset Turnover Ratio 7.40 11.12
Revenue 3432000
Current Assets 1124000
Current Asset Turnover Ratio 3.05 3.14
Gross Profit 586000
Sales 3432000
Gross Profit Margin 17.07% 17.50%
Selling Admin Expenses 358900
Revenue 3432000
Expense Analysis 10.46% 14.00%
Current Assets 1124000
Current Liabilities 281000
Current Ratio 4.00 2.70
Current Assets- Inventory 408800
Current Liabilities 281000
Quick Ratio 1.45 1.00
Trade and other Receivables 351200
Revenue 3432000
No of Days in a Year 360
Debtor's Days Outstanding 37 32
Profit Before Interest and Tax 146600
Revenue 3432000
EBIT Margin 4.27% 6.00%
Net Profit 102620
Total Assets 1587620
Return on Assets 6.46% 9.10%
Net Profit 102620
Capital & Reserves 782620
Return on Equity 13.11% 18.20%
The ratio was around 37 company and industry average was around 32 days, the company should well ensure that they collect the
due amount more effectively.
The fall in the revenue of the company had made the ROA for the company to be only 6.46% while the industry had around
9.10%.
With a higher set of profitability enjoyed by industry average the company on a comparative basis had a lower ROE, reduction in
expenses and higher sales would allow better ROE.
The EBIT Margin for the company has been comparatively low for the company which was around 4.27% for the company which
when compared with the industry average ratio has been around 6.00%.
The ratio has been low to around 3.05 times while the industry had an average of 3.14 times. This got to well show that other
competitor companies are well utilizing their assets for generating revenue.
The gross margin for the company has been around 17.07% which when compared with the industry average ratio has been in
line to around 17.50% for the industry. A higher gross margin would allow the company to well cover its operational and fixed
costs (Otekunrin et al., 2018).
The current ratio for the company had been around 4.00 times and at the same time the industry had an average of about 2.70
times. This got to well show that the company has tried its best in well maintain sound liquidity in the business course of
operations.
The acid test ratio also checks the liquidity position of the company in order to well check whether inventory plays a crucial part
in the current asset reported by the company (Ariesta, Marlina and Hidayati 2019).
The Quick ratio for the company has been around 1.45 times and the same was around 1.0 times for the industry, this got to well
show that inventory play a sound role.
Ratio Analysis
The ratio has been fairly in line with the industry level whereby the company should well try to keep a lower amount of
inventory level and increase the level of sales, which would help them achieve better turnover ratio (Svynarenko, Zhang and
Kim 2019).
The ratio has been well measured with the help of the revenue/accrued expense ratio, which well suggest that the ratio has
been consistently higher for the company than the industry ratio and this is in particular due to the lower amount of accrued
expenses as compared to the total sales reported by the company (Haskins 2017).
The ratio has been around 7.40 times for the company, while the industry had an average of 11.12 (Setiawan and Amboningtyas
2018). The company should well try to increase the revenue that is generated from the fixed assets that have been well
deployed in the business course of operations for increasing effi ciency.

3ACCOUNTING AND FINANCIAL MANAGEMENT
Part B
Advantages and Limitations of Ratio Analysis
Ratio Analysis is well used as a quantitative assessment tool which would be well used
for the purpose of analysing the financial performance and financial position of the company.
The application of the same can be well done for the better analysing the financial statements of
the company that are of different sizes and nature and helps the investor in easy comparison of
financial data (Moolman 2017). On the hand, the tool is well criticized on the ground that it well
uses a historical data set of the purpose of analysis. The analysis has been done for the purpose
of better assessment of the financials of the company. Other aspects of the company like
Inflationary effect can also effect the financial effect of the company which has not been
considered in the analysed financial statement of the company when we use ratio analysis
(Haskins 2017). Thus the tool has its own set of advantages and disadvantages and the same are
as follows:
Advantages:
 The financial statement becomes more simplified in terms of interpretation.
 It allows the investors evaluate companies of different size with each other.
 Assists in the trend period analysis showing increase or decrease in key item (Sayari and
Mugan 2017).
 The tool well highlights a significant data in a simple manner on an immediate basis and
the users can well decide by looking at the financial data base of the company for the
year or trend period analysed.

4ACCOUNTING AND FINANCIAL MANAGEMENT
 Liquidity, profitability, solvency and leverage are some of the crucial aspects which can
be well determined with the help of the ratio analysis (Sayari and Mugan 2017).
Disadvantages:
 The present financial statement may be complicated for application purpose
 Financial data is highly influenced by management view and hypothesis, which reduces
the usefulness of ratio analysis. The accounting criteria that are used by companies
provides a range of accounting methods, which are well used by companies which in turn
reduces the comparability issues and thus the tool on an overall basis can be ineffective
for application purpose.
 Since data used are of historical nature, it might not be the best tool for analysing the
future prospects of the company.
 Investors and Financial information users are more concerned with the current and future
financial performance and not with the past historical data of the company. The
application of ratio analysis is done generally with the help of the historical information
and this would be of not much relevance for the company.
 Financial statement are detailed and it is not possible for financial users to well evaluate
the entire financial statement of the company. Thus, ratio analysis would be providing an
overview of the various items of the company fluently so that it becomes easy to
interpret.
Part C
Journal Reflection

5ACCOUNTING AND FINANCIAL MANAGEMENT
The unit conducted on Accounting and Financial Management has allowed me to
understand the application of various tools for understanding the financial statement of the
company. I was able to well interpret the financial statement of the company with the help of
ratio analysis. The Financial Statement analysis would be helping me as an investor evaluate the
financial course of a company. I have learned about the application of different ratio which
covers the different aspects of the company and help us better view about the financial
performance and financial position about the company. In particular I have noticed every set of
method or analysis has its own terms of benefits and limitations and son does the ratio analysis
has. However, from one view point of perspective by analysing the past financial performance
and comparing it with the industry average over a trend period could help the investors show the
efficiency and performance of the company.
The key set of improvements that can be well done when investors and financial users
should well use a various range and types of tools for the purpose of assessment and analysing
the future prospects of financial performance of the company.
The key thing which I liked about the unit was that the application of the ratio analysis is
well done for the purpose of analysing and reviewing the changes that have been observed in the
financials of the company for the trend period analysed. There are various factors which an
investor or financial user’s wants from the valuation model so that it can well get to know
whether the financial statement would be helpful for analysis purpose or not. In particular what I
did not like about the tool was that the tool do have some set of limitation, like incorporation of
historical data into analysis part rather than future prospects which are generally required by
investors and users.

6ACCOUNTING AND FINANCIAL MANAGEMENT
References
Ariesta, V.E., Marlina, M. and Hidayati, S., 2019. FINANCIAL RATIO ANALYSIS OF BANK
PERFORMANCE. Journal of Economics, Business, and Government Challenges, 2(2), pp.119-
127.
Haskins, M.E., 2017. Remington, Inc.: Instant Insights for Financial Ratios. Darden Business
Publishing Cases.
Moolman, A.M., 2017. The usefulness of Analytical Procedures, other than ratio and trend
Analysis, for Auditor decisions. International Business & Economics Research Journal
(IBER), 16(3), pp.171-184.
Otekunrin, A.O., Nwanji, T.I., Olowookere, J.K., Egbide, B.C., Fakile, S.A., Lawal, A.I., Ajayi,
S.A., Falaye, A.J. and Eluyela, F.D., 2018. Financial Ratio Analysis and Market Price of Share
of Selected Quoted Agriculture and Agro-allied Firms in Nigeria AfterAdoption of International
Financial Reporting Standard. The Journal of Social Sciences Research, 4(12), pp.736-744.
Sayari, N. and Mugan, C.S., 2017. Industry specific financial distress modeling. BRQ Business
Research Quarterly, 20(1), pp.45-62.
Setiawan, H. and Amboningtyas, D., 2018. FINANCIAL RATIO ANALYSIS FOR
PREDICTING FINANCIAL DISTRESS CONDITIONS (Study on Telecommunication
Companies Listed In Indonesia Stock Exchange Period 2010-2016). Journal of
Management, 4(4).

7ACCOUNTING AND FINANCIAL MANAGEMENT
Svynarenko, R., Zhang, Q. and Kim, H., 2019. The financial burden of cancer: financial ratio
analysis. Journal of Family and Economic Issues, 40(2), pp.165-179.