Financial Analysis Report: Sunny Day's Pharmacy Performance Review

This report provides a detailed financial analysis of Sunny Day's Pharmacy, evaluating its performance based on various financial ratios and metrics. The analysis covers key areas such as salary and wages, staff training, marketing expenses, asset turnover, gross margin returns on inventory investments, inventory turnover, and account receivable turnover. The report also assesses the pharmacy's short-term and long-term solvency, including current and quick asset ratios, and debt-to-asset ratio. Furthermore, it examines the margin of safety, breakeven point, and sales to breakeven ratio. The core issue identified is poor inventory management, leading to recommendations for improvement, including better inventory control, strategic buying, brand selection, and space optimization to enhance profitability and operational efficiency. The report concludes by emphasizing the importance of addressing inventory management to boost overall financial performance.

 The standards set for the salary and wages was 13.04%. In the year 2016-17, salary and
wages was amounting to 12.7% whereas in the year 2017-18, the same was 10%. There was
a declination in salary and wages by 2.7% due to increment in the total turnover. Due to the
increment in the total revenue of pharmacy’s, the gross margin has decreased. The reason
for the boost in the sales was mainly due to pharmacy swelling its team fellows (i.e. 2016-17
= $ 460, 769 and 2017-18 = $ 506, 846).
 The standards set for staff training was 0.9% and for the marketing expense it was 0.55%. In
the year 2016-17, the ratio for staff training was 0.5% and for marketing expenses the ratio
was 1.47% and in the year 2017-18, the ratio for staff training was 0.42% and for marketing
expenses the ratio was 1.17%. Both the ratios have decreased in 2017-18. These ratios
should be at least kept at the same level with that of the previous year (2016-17) because
these are most significant constituents for the boost in the profit margins. The marketing
expenses and the training of staff are the most important to the pharmacy business.
Monetary Presentation
Asset Turnover Ratio
 The asset turnover ratio was 2.78 which simply indicates that the turnover rise by $2.78,
with the expenditure of $1 on asset. This means that the company is producing gains with
the amount that has been invested in the asset.
Gross margin returns on inventory investments
 The standards set for GMROII was 4.49. In 2016-17, the GMROII was 3.91% whereas in 2017-
18, it was 3.65%. The method for the increment in GMROII is to reduce stock or to increase
the profit.
Operational Effectiveness
Inventory Turnover Ratio
 The standards set for Stock turnover ratio was 7.35 days. In 2016-17, the stock turnover
ratio was 9.12 days whereas in 2017-18 the ratio was 14.59 days. This simply directs that
stock management is very pitiable from the pharmacy. The reason for the unfortunate stock
management is wholesale buying of stuffs at an economy price.
Account Receivable Turnover Ratio
 In 2017-18, the account receivable turnover ratio is 5.57 which means average days for a
customer to pay their debts is 65.6 days (365/5.57). This simply directs that the customer
takes 66 days to pay off their debts which is not a best condition and it needs the
consideration because it slows down the cash flows. Also an interest rate of 5% is charged if
the debts not paid within 28 days from the transaction date.
Monetary Firmness

Measure of short-term solvency
Current Asset Ratio
 According to QUT financial management, the current asset ratio must be in the range
between 2-6. Hence in this case, current asset ratio is 2.84 which is apt.
Quick Asset Ratio
 In this case the quick ratio is 1.16 which means that the pharmacy store has sufficient liquid
assets and can be converted into cash to pay off its current debts.
Measure of long term solvency
Debts to Asset ratio
 Ideal debt asset ratio must be less than 1. In this case Pharmacy’s Debt-asset ratio was 0.9
which means pharmacy has more assets than its liability. In other words, we can say that
liabilities can be pay off easily by selling of its assets.
Margin of Safety
Breakeven Point (BEP)
 The formula for Breakeven point (BEP) is Sales Less Cost of goods sold less Expenses. The
standards set for BEP is $ 175, 152 whereas the pharmacy’s BEP is $ 148, 474 which is very
close.
Margin of Safety Ratio (MOS)
 The standards set for Margin of safety (MOS) is 16.31 whereas the pharmacy’s MOS is 9.23
which directs that margin needs to increase by reduction in breakeven sales.
Sales to Breakeven Ratio
 Pharmacy’s Sales to Breakeven ratio is 1.03. Conferring to financial management, business is
more vulnerable to profitable condition as the ratio is close to 1. The ratio must be more
than 1 and this can be achieved by lowering in expenses or cost of goods sold.
Inventory Management
The core problem with the Sunny day’s pharmacy is the pitiable inventory management and the
reason was the increment of COGS. This affects the gross margin and will more hamper profitability
if ignored.
Below are some propositions:
 Better inventory manager is required for Sunny Day’s pharmacy who will keep the products
with high margins.
 Wholesale buying of products at cheaper rates only if high stock turn over.
 Only keep chosen brands for the stuffs.
 Offer more direct metres to products that have a greater gross margins.
 Reduce stock by putting them on a clearance sale and make spaces for more gainful
inventory.
 Keep the chosen brands in the mark zone on the shelves/tables.

 Make spaces by removing 3-4 refrigerators and keep only 1 refrigerator this will help in
reducing power and also ensure to remove soft drinks with juices, water etc. to endorse
health and wealth.
 Reduce varieties of brands and make spaces for the customer chosen brands.