Financial Ratio Analysis: Performance Evaluation of Jill's Business

This report provides a financial ratio analysis of Jill's business, comparing its performance against a competitor. Key ratios such as net profit margin, gross profit margin, current ratio, and acid test ratio are calculated and interpreted. Jill's demonstrates superior profitability with a higher net profit margin (33.33% vs 30%) and gross profit margin (65.50% vs 58%). Its liquidity, as indicated by the current ratio (3.9:1 vs 3.7:1) and acid test ratio (3.6:1 vs 3.5:1), also outperforms the competitor. However, Jill's has a longer accounts receivable collection period and accounts payable period, which could potentially impact its bad debt and cash flow management. The report concludes that while Jill's shows strong financial performance, attention should be paid to managing its receivable and payable periods. Desklib provides a platform for students to access similar solved assignments and study resources.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author Note:

1ACCOUNTING
Table of Contents
1. Net Profit Margin ratio.......................................................................................................2
2. Gross Profit Margin Ratio...................................................................................................2
3. Current ratio........................................................................................................................2
4. Acid Test ratio....................................................................................................................2
5. Accounts receivable collection period................................................................................3
6. Accounts payable period ratio............................................................................................3
Reference:..................................................................................................................................4

2ACCOUNTING
1. Net Profit Margin ratio
Net profit margin is the maximum simple profitability ratio that processes the
calculation of net income of a company to its net sales. (Al Karim and Alam, 2013).
Jill`s is successful in converting of 33.33 percent of its sales to net income where as it
competitor is only able to convert 30 percent.
2. Gross Profit Margin Ratio
Jill`s business activities are more profitable as it gross profit is 65.50 percent. The
investors would prefer investment in Jill`s than its competitor. Competitor’s ratio resulted to
58 percent.
3. Current ratio
The current ratio indicates the ability of a company to pay off its debts along with
short term liabilities at the urgent cash crisis.
Jill has the ability to pay off its debts by the general indication of criteria. The result
shows that Jill`s current ratio is higher than 1.00x that is 3.9:1 where as competitors current
ratio is 3.7x. this signifies that Jill`s performance is better and its financial are sound.
4. Acid Test ratio
Acid test ratio indicates the immediate ability of a company to pay its current liabilities
through liquidating short term securities along with liquid cash. (Al Karim and Alam, 2013).
Jill`s acid test ratio is 3.6:1 that indicates that it can easily get rid of its liabilities than its
competitor whose acid test ratio is 3.5x

3ACCOUNTING
5. Accounts receivable collection period
The accounts receivable period is high of Jill`s than its competitor than 3days. It
should be less as it affects the bad debt of the company. Lower receivable period is
preferable.
6. Accounts payable period ratio
The payable period is also higher of Jill`s as compared to its competitor than 239 days.

4ACCOUNTING
Reference:
Al Karim, R. and Alam, T., 2013. An evaluation of financial performance of private
commercial banks in Bangladesh: Ratio analysis. Journal of Business Studies Quarterly, 5(2),
p.65.