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Financial Statement Analysis - Assignment Example

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That may be an indication that in 2007, the firm generates more profits than in 2010 (Fridson and Alvarez, 2011).
The company’s return on assets and return on capital…
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Financial Statement Analysis
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Download file to see previous pages That indicates that the company was more liquid in 2010 than in 2007. Therefore, the company was in a better position to meet its obligations in 2010 as compared to 2007.
From the ratios, it is evident that the company performed better in 2007 than 2010. The only area in which it performed better in 2010 is in liquidity ratios. That indicates that resource utilization was better in 2007 as compared to 2010 (Piper, 2013, p.53). The cost and expenses may have contributed to the differences in the ratios. Minimizing costs and expenses would act to rectify the trend and ensure the profitability improves in the future. The effect of the expenses is evident as the ratio of the selling, general and administrative expenses to sales is higher in 2010 than in 2007. The ratio is 0.147 and 0.141 respectively. Reducing the expenses would increase the profit and income for the company. That would increase profitability over the years (Brigham and Ehrhardt, 2013, p.107).
The asset turnover ratios are higher in 2007 than in 2010. The only turnover ratio that is higher in 2010 than 2007 is the property, plant and equipment turnover ratio. That indicates that the company is able to generate more sales from its assets in 2007 than in 2010. An improvement in this statistic may be possible if the company achieves more sales given the increasing assets over the years. The increased sales would improve the turnover ratios and result in an increase in profitability (Kimmel, Weygandt, and Kieso, 2012, p.689). The Operating Profit influences the Return on Capital Employed (ROCE) to a large extent. The operating profit in 2010 is lower than in 2007. That, coupled with the higher operating capital in 2010, gives a lower return on capital compared to that of 2007.
In all aspects, profitability has a huge impact on the Return on Capital Employed (ROCE) of the company. A falling ROCE may be an indication of the company’s falling competitive advantage. An ...Download file to see next pagesRead More
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