Repot based on prepared financial statment - Essay Example

Financial ment Financial ment The balance sheet indicated that the company’s total assets atMay 31, 2012 were £53,400. The company was holding £5,200 and £700 as cash at bank and in-hand. The liabilities of the company comprise of a long-term loan of £10,000 and operating current liabilities of £5,700. The income statement for the year May 31, 2012 indicated that the company’s operations generated sales revenue of sales revenue of £80,900 with sales return of £2,400. The net profit of £8,400 was reported in the year ending 2012.

The financial statement analysis calculated values of key performance indicators. The company’ profitability position was strong. It generated strong ROCE of 17.9% and ROA of 15.73. It implies that the company was efficiently utilizing its assets to generate high profits from its operations. It was reflected from operating profit margin of 10.4% and gross profit margin of 48.70%. The liquidity position of the company was reported to be strong. Both current and quick ratios had values greater than one, which is significant as the company had a high value of current assets that could cover its current obligations.

The company’s converted its inventory into sales in 76.6 days, which suggested slow movement and inventory turnover of just 4.77. However, the company was efficient to collect cash for its receivables. On the other hand, the company paid its suppliers in 46.7 days. Moreover, the company only generated £1.51 of sales for every £1 invested in assets.The company’s leverage position was very weak. The gearing ratio value was 21.28, which suggested that the company highly depends on external borrowing to meet its business requirements.

Moreover, it incurred high interest costs that consumer most of the company’s operating profits i.e. 83%.