Principles of Accounting-- ratio analysis - Essay Example

This report provides the financial analysis of e-Generation. Financial ratios will be used as the main approach of financial analysis. Horizontal analysis will also be provided to compare the financial performance of the business in different periods. The calculations will be provided based on the software generated financial information for the business. Although the ratios will be provided for the month of January, comparison will be made between the results at the end of January and the results on 10th of January.

This analysis will be important in understanding and evaluating the performance of the business in order to acquire information necessary for decision making by stakeholders. The profit margin foe e-Generation for the month of January is 10.61%. This means that for every unit of sales the company makes 0.1061 profits (Sutton, 2004). This means that the company is making positive profit. This reflects an increase from the profit margin of 10th January which was 8.33%. Therefore, the company controlled its expenses towards the end of the moth better than at the beginning of the month.

The gross profit at the end of the month of 26.3% means that the company made a gross profit of 0.263 for every unit of sales. This is a good performance. However, it is a decrease from the gross profit made at the beginning of the month (34.04%). This means that the business managed its cost of sales in period 1 (beginning of January) than period 2 (end of January). The return on assets ratio was 4.08% at the end of the month, which means that for every single unit of asset the business earns a profit of 0.0408. On 10th January the business record ROA of 0.

57% which means that the company earned more profits for every unit of assets in the end of the month compared to the beginning of the month. The ROE at period 2 is 12.06% which indicates that the company made a profit of 0.1206 units for every unit of equity invested by owners. This is a good