Financial Ratio Analysis Report for Small Business Management

This report provides a financial ratio analysis for a small business, focusing on liquidity and profitability. It calculates and discusses key ratios like the current ratio, quick ratio, and operating cash flow ratio, highlighting trends between 2008 and 2010. The report also examines the gross profit ratio and its fluctuations, indicating the firm's performance relative to industry standards. The analysis suggests the need for improved profitability to survive in a competitive market, recommending the implementation of new policies and strategies to boost sales and promote growth. The report references relevant academic sources to support its findings and recommendations.

Running head: SMALL BUSINESS MANAGEMENT 1
Small Business Management
Name
Institution

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SMALL BUSINESS MANAGEMENT
Question 8:
In this questions the key financial ratios for the company are calculated. Also, trends
arising from such a calculation are discussed in brief. The discussion of the trends will guide in
providing effective recommendation that if implemented will see the business highly profitable
and grow rapid. The following computations are based on liquidity ratio, profitability ratios.
Liquidity Ratio:
Current Ratio=Current Asset/Current Liabilities
726715.0/354650.0=2.10
Quick Ratio= (Current Asset-Inventories)/Current Liabilities
(7267150-345678.0)/354650.0=1.10
Operating Cash Flow Ration=Operating Cash Flow/Total Debt
102665.0/135000.0=0.760
There was a decreasing trend in the ratios between 2008 and 2010.
Profitability Ratio:
Gross Profit Ratio= (Gross Profit/Sales) X100
(943259/1793268)X100=52.6%
The gross profit ratio was shifted from 52 percent to 53.60 percent and to 52.6% between the
years 2008 and 2010. Between the years 2009 and 2010, there was declining trend in the
profitability ratio. This means that a small gross profit was realized by the firm. Thus, the firm’s
performance is not good relative to the industry average (Vogel, 2014). Hence, there is a need for
the firm to improve its profitability in order to survive this stiffly competitve industry
(Jindrichovska & Kubíckova, 2014). The organization might be outstripped by the rival if it does

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not change tact. Therefore, the management must introduce new policies and strategies to boost
sales in order to grow and expand.

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References
Jindrichovska, I., & Kubíckova, D. (2014). Impact of International Financial Reporting
Standards (IFRS) Adoption on Key Financial Ratios: The Case of the Czech
Republic. Journal of Modern Accounting and Auditing, 10(2), 133.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.