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Acf110 Assignment 2

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Submitted By Mpunter
Words 1551
Pages 7
Dear Robert,

The statements provided have been used to come to a decision regarding finance. Based on the figures and reasons in the below report it is with great pleasure that your business loan is approved. It is the opinion of the bank that Creative Activities has certain areas it needs to look at, these areas may become bigger issues if they are not addressed. But it is also felt Creative Activities has adequate cash flows to cover the finance costs. Below is reported all figures and meanings for ratios and how these ratios influenced the decision.

The company's ROA and ROE have remained constant over the last two years with only a marginal increase of .01% in ROA. Whilst there is no huge improvement in these results, it shows that the company is stable and can maintain steady returns.

Gross profit margin has gone up from 57.53% to 57.93%. Gross profit is a reflection of the direct return on sales, without taking into account the operating costs of the company. An increasing GP might indicate that Creative Activities has either been able to achieve a higher price point, secure a discount on direct costs involved in producing the product, or a combination of both. This is an encouraging result.

Profit margin has moved in a positive direction from 2010 to 2011, this is a good result for Creative Activities. An increase in GP has also influenced the bottom line, which has resulted in a slightly increased Profit Margin. However, while sales have grown by 0.6%, selling, admin and finance expenses have grown by 1.4%. This suggests that there may be some efficiency to gain in these areas, potentially achieving an even better profit margin in future years.

Current ratio for Creative Activities has gone down from 4.09 in 2010 to 3.91 times in 2011. Although a good result considering the benchmark of 1.50 the fact that it has gone down is

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