Free

Ratio Analysis - Essay Example

Comments (0) Cite this document
Summary
being provided by the accounts office. The analysis was performed in order to notify the management of the prospective external…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.6% of users find it useful
Ratio Analysis
Read TextPreview

Extract of sample "Ratio Analysis"

Riordan Manufacturing Company Ratio Analysis Memo of the of the Teacher: Accounting II Submitted: 28 February2014
Name of the Institution:
To: CEO, Riordan Manufacturing Inc.
From: Accounting Department
Dated: 26 February 2014
Subject: Ratio Analysis
The major purpose of this memo is to outline the recent horizontal and vertical analysis of the ratios completed on Riordan Manufacturing Inc. being provided by the accounts office. The analysis was performed in order to notify the management of the prospective external interests. The analysis was made so that any external investors who might be interested in the company are able to utilize the calculated ratio results to determine Riordan Inc’s performance and its most updated financial position and strategy. The discussed liquidity ratios of the company are the current ratio, acid test ratio and inventory turnover. They are of interest to the creditors to determine the firm’s ability to meet its short term financial obligations. So far the liquidity ratio of the company indicates that the liquid assets of the company are higher compared to its own average, meaning that the company as assets that can be easily be converted to cash. The indication of good liquidity ratio reduces the worry of the creditors since the business is at a position to easily pay its short term liabilities.
Profitability ratios concentrate on the major areas such as asset turnover, profit margin, return on assets, and return on common shareholder’s equity. Profitability ratios are used by investors to measure the management effectiveness as shown by returns generated by the profit margin (Weygandt et al, 2010, p 723). The company’s ROE has been registering a slight decrease, from 17% in 2009 to 15% in 2011, meaning that the company is earning less returns on its capital. As calculated the highest profit margin is 4.97% in 2011 which is low, meaning that the business is not that profitable. The solvency ratio of the company is based on debts to total assets and times interest earned. It is used by shareholders and potential investors to determine financial risk of the business. When calculated in 2011 debt to total assets is 23.33% which gives a healthy indication of the company’s performance. During the same year the times interest was 8.3% which backs the claims of the company’s financial healthiness. Therefore from the solvency ratios the management can learn that the company is capable of paying back its long term obligations (Weygandt et al, 2010, p 727).
References
Weygandt, J.J.; Kieso, D.E. & Kimmel, P.D.(2010): Financial accounting 7th edition. Chapter 13: Financial Statement Analysis, Hoboken, NJ: John Wiley & Sons. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Ratio Analysis Essay Example | Topics and Well Written Essays - 250 words”, n.d.)
Ratio Analysis Essay Example | Topics and Well Written Essays - 250 words. Retrieved from https://studentshare.org/finance-accounting/1630886-ratio-analysis
(Ratio Analysis Essay Example | Topics and Well Written Essays - 250 Words)
Ratio Analysis Essay Example | Topics and Well Written Essays - 250 Words. https://studentshare.org/finance-accounting/1630886-ratio-analysis.
“Ratio Analysis Essay Example | Topics and Well Written Essays - 250 Words”, n.d. https://studentshare.org/finance-accounting/1630886-ratio-analysis.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Ratio Analysis

Ratio Analysis

...? Ratio Analysis In APA Format Technology has improved by leaps and bounds; the last type store has closed down very recently. There are newer products which are being made available by leading companies and these products have been faring very well in the market. Entertainment is a key area which has been targeted by several leading companies; apple is a classic example of one such company. Ipods have become a daily necessity for several people, Ipads have been selling like hot cakes and there are others products that are being manufactured by Apple which are doing reasonably well in the market. This paper will shed light upon the financial ratios of Apple, how the company will fare in...
4 Pages(1000 words)Case Study

Ratio Analysis

...?On Ratio Analysis Ratios analysis is a set of techniques used to assess the financial ratios of a firm pertaining to liquidity, debt, and profitability (Gibson 1982). The analysis focuses on the interpretation of indicators or tools or financial ratios through which an analyst can evaluate the investment worthiness of a firm (Gibson 1982). In the words of Gibson (1982, p. 18), “probably no tool is more effective in evaluating where a company has been financially and in projecting the financial future of a company than the proper use of financial ratios.” This work discusses the importance of...
3 Pages(750 words)Essay

Ratio Analysis

...? Finance & Accounting Introduction to Finance & Accounts With work Assignment Word Count 660) ID Report for Go Ahead Group Plc February 2013 Table of Contents Executive Summary 3 Introduction 4 Ratio Analysis Current & Previous Year 5 Comparison with Prior Period Results 6 Comparison with Industry Average 8 Key Performance Indicators 8 Advantages and Limitations 9 Appendix 1 11 Ratio Analysis (Go Ahead Group Plc., 2012; 2011) 11 Appendix 2 11 Annual Movements (Go Ahead Group Plc., 2012; 2011) 11 References 12 Executive Summary The financial position and performance of a company may be analyzed by a number of ways. Financial reports are analyzed through complex tools like...
6 Pages(1500 words)Essay

Ratio Analysis

...?Ratio analysis Introduction The wider scope of accounting involves identification, quantification, recording, and communication of economic information to facilitate informed decisions among stakeholders. Raw information may however be bulky and disorganized for this role and financial accounting refines the information into financial statements. Ratio analysis further simplifies the information and allows for a longitudinal and cross sectional analysis of an organization’s performance. I, in this paper, perform ratio analysis of IBM financial statements for the accounting period ending in the years 2010, 2011, and 2012,...
3 Pages(750 words)Math Problem

Ratio Analysis

...? Ratios Analysis of ASOS Company Executive Summary ASOS is a global fashion Company that deals with 20-somethings.The company specializes in selling more than sixty five thousand products. In addition, ASOS provides an avenue where people exchange ideas and carry out business. The study has provided insight analysis financial ratios of ASOS Company. Whereby, a comparison of financial results for the two years was executed. It can be observed that the financial performance of ASOS Company was higher in 2013 than 2012 based on the financial statements and ratios computed below. In addition, the company performance was higher in reference to industrial...
6 Pages(1500 words)Coursework

Ratio analysis

...? RATIO ANALYSIS FOR APPLE INC. Ratio analysis is a technique in finance analysis and it is very important. This isbecause it involves a conversion of financial statement quantities or figures to aid comparison in a meaningful manner (Dess 2012). The comparison would be within a firm between two financial periods like in our case where we want to analyze Apple Incorporation’s financial statements for two financial periods. Secondly, the comparison could be between firms operating within the same industry. The former is used to compare the performance of the firm within itself in terms of aspects such as improvement in management skills and finance...
10 Pages(2500 words)Essay

Ratio Analysis

...Mc Donalds Ratio Analysis APA Style Report Please put here 6/19/2008 Introduction A financial ment is a compilation of data, which is logically and consistently organized according to accounting principles. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an income statement. Financial statements are the major means through which firms present their financial situation to stockholders, creditors, and the general public. The majority of firms include extensive financial statements in their annual reports,...
11 Pages(2750 words)Essay

Ratio analysis

...Financial ratio analysis affiliation Financial ratio analysis, simply ratio analysis, is the data contained in the company’s financial statement. The analysis is solely based on the balance sheet, cash flow statement, and income statement. From such parameters of the company, it possible to evaluate company’s performance with regards to efficiency, possibility of liquidity, profitability, and solvency of the company. In the end, such ratios will give a trend of the company whether it is improving or deteriorating. Comparison of these ratios with other companies will give a hand in...
1 Pages(250 words)Essay

Ratio analysis

...: Error: Reference source not found Purpose: Error: Reference source not found Formula: Error: Reference source not found Calculations Error: Reference source not found Trend Analysis Error: Reference source not found Total Debt Ratio Error: Reference source not found Debt-Equity Ratio Error: Reference source not found Time Interest Earned Ratio Error: Reference source not found Total Assets Turnover Error: Reference source not found Comparing ratios with the industry averages 6 Total Debt Ratio 6 Debt-Equity Ratio 6 Time Interest Earned Ratio 6 Total Assets Turnover 6 Recommendation 7 Conclusion...
1 Pages(250 words)Coursework

Ratio analysis

...Ratio Analysis Calculation of Ratio Analysis Ratio Formula Current Ratio Current Assets ÷ Current Liabilities 12,000/8,100 = 1.48 9,600/7,000 = 1.37 Quick Ratio (current assets-stock)/current liabilities (12,000 – 8,500)/8,100 = 0.43 (9,600-7,100)/7,000 = 0.36 Inventory turnover Cost of sales/average stock 55,000/[(8,500+7,500)/2] = 6.88 50,000/[(7,100+7500)/2 = 6.85 Total Asset turnover Annual Sales/total Assets 70,000/(12,000+21,500) = 2.09 63,000/(9,600+20,200) = 2.11 Debt/Equity Ratio Fixed Charge Capital/Equity 8,000/10,000 = 0.8 6,500/8,000 = 0.8125 Debt Ratio Total Debt/Total...
6 Pages(1500 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Ratio Analysis for FREE!

Contact Us