Fitzory Liquor Ltd Financial Performance & Ratio Analysis (2016-2018)

This report provides a financial analysis of Fitzory Liquor Ltd from 2016 to 2018. It highlights the company's sales growth alongside a decline in gross profit due to increased promotion and purchasing costs. While expenses were well-managed, the analysis covers key ratios like inventory turnover, current ratio, and debt ratio to assess the company's liquidity, solvency, and ability to manage debt. The report notes a decreasing interest coverage ratio, indicating a reduced capacity to pay interest charges, and suggests that while the company has assets, increased liabilities may pose challenges. Recommendations include seeking additional funding and negotiating with suppliers for lower pricing to improve profitability and debt repayment.

Introduction: The financial report of Fitzory
Liquor Ltd for the year 2016 ended at 31 March
2018.

By considering the financial performance of the company and reviewing the same, it can be said
that sales growth of the company had a tremendous growth from 2016 to 2018, the sales strike with
time showcased better operations. On the other hand, the gross profit of the company declined from
2016 to 2018 and the same is impacted severely by higher promotion and purchasing costs, thereby
leading to less profitability. While analyzing the expenses, it is noticed that company is doing well
at maintaining the expenses, which is the result of decreased costs of advertisement and office
space. All expenses are effectively managed from finance expenses to selling expenses, because of
the reason that company adopted the strategy of cutting the costs down. In terms of accounting, the
inventory turnover is stated as the holding period from the time when the inventory is put into sale
or employed in a certain process. The inventory turnover of the company in the year 2016, 2017
and 2018 rose, eventually showcasing the considerable growth in the sales of the company and
sufficient cash flow thereof. The current ratio is said to be the ratio of current assets to current
liabilities, this is employed to measure if or if not the company is eligible to make repayment of its
debt on short-term basis. It is held that, the current assets of the company are two times more than
the company’s liquid liabilities, which means higher ability of repaying all debts. The company has
optimally balanced its debt and equity, and has conducted better planning to pay off its debt by
holding enough of assets. The liquidity ratio is equivalent to the debt-to-total assets. If the gearing
ratio is higher, the company will not be able to repay its debts in an efficient manner as it will affect
their solvency. However, the concerned company had sufficient amount of assets in both the years
(2016 and 2018); although in 2018 it faced insolvency which forced the company to raise money
from different sources. The EBIT ratio and interest expenditure acquired by the production and
operations of the company is to evaluate interest coverage efficiency of business. If this ratio is
higher, the company is strongly able to make effective payment of interest. However, the interest-
protection multiples is falling year to year from 2016 to 2018, reflecting less capability of company
to pay off its interest charges. The debit ratio is the total of liabilities in comparison to the total of
assets. There is increment in liabilities, as the capital of company is highly used for external
constructed purpose, although, low debt ratio indicates the powerful independence of company and
better stability of capital. However, the debt ratio of the company in the three years has rapid
increase, which states the decisive increase in the liabilities of company.
On the basis of above ratio analysis, recommendations can be drawn that the company can lend
more money from banking institutions for more business investment and expansion. Along with
this, it must shift to a low pricing price supplier so that it can gain higher revenue and profits while
repaying debts on timely basis.