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Ratio Analysis Report

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Accounting

Assessment 2: Ratio Analysis Report

CONTENTS

Executive Summary …………………………………… 3

Profitability Measures …………………………………. 4

Efficiency Measures …………………………………… 5

Liquidity Measures …………………………………….. 6

Financial Gearing (Leverage) Measures ……………….. 7

Conclusion/Recommendation …………………………... 8

References ………………………………………………. 9

Appendix: ……………………………………………….. 10 FORMULAS, CALCULATIONS AND LINE GRAPHS FOR ACCOUNTING 1: Ratio Analysis Report

Executive Summary

The purpose of this report is to provide analysis over the past 4 years of financial reports submitted by Safety Styles Pty Ltd (SS) as it seeks to obtain finance to expand their operations, and subsequently make a recommendation regarding there application for finance.

Discoveries and explanations were based on calculations using various financial ratios: profitability, efficiency, liquidity and Gearing.
I believe that (SS) has sound management, which is reflective of their performance, and has the ability to service the requested business loan. In order to nurture and assist growth, finance is required to apply investment strategies, through the acquisition of much needed assets.

Profitability Measures

Return on Assets (ROA) measures how profitable a business is comparative to its entire assets and measures utilization of them, although assets are calculated using carrying not market values, which may provide misleading results (BOUNDLESS 2013, para. 4). Safety Styles ROA has remained consistent. It appears the owner is reaping an acceptable return of 30.47%-31.29%. Increased sales on credit could distort accounts receivable figures in the future. With sound management, further asset investment should increase ROA going forward.

Return on Equity (ROE) exposes how much profit a business made in contrast to the total amount of shareholder equity. The higher

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