Financial statment analysis - Essay Example

An attempt is also made to correlate the performance of the companies and the share price movements at the stock exchange. The profitability of a firm is usually evaluated in terms of the gross margin, net margin, earnings per share and payment of dividend. Over the last three years the gross profit of the company has been showing both upward and downward trend. In the first year (2006), gross profit has shown a decrease of 1.12 percent from that of the year 2005. In the next year also, the profit has shown a significant setback, which accounts for around 79 percent.

However, it was corrected in the third year, where the firm could achieve an increase of around 29 percent when compared to the year 2007. This is because of the reason that in the first and second year (2006 and 2007), cost of goods sold has shown a significant increase which is not in proportion to the change in sales. However, the net profit figures over the period show a different picture. The firm could achieve a positive figure in all the three years which indicate that the firm is in a position to meet the interest of all its stakeholders, particularly that of shareholders.

The profit after tax, which represents the amount available to ordinary shareholders (investors) for all the three years, shows an increasing trend. . It is given in the Task II that how good is the return on capital employed of the firm. It is evident from the table (please include table No. Here) that return on capital employed has been good for the form for the last three years. Apart from not being it stable, return on capital employed shows an increasing trend. From the year 2005 to 2006, there is an increase of about 7 percent.

From the year 2006 to 2007, it is further increased by another 8 percent. It was again increased from 8 percent to 11.6 percent in the year 2008. This state of affairs is really a green signal for the investors to ensure themselves that they will be assured a happy return. Analysis of Financial StatusFinancial status of a firm is the financial position or condition that the firm has on a particular date as a result of business operations. Financial position of a firm is usually described the balance sheet and other analytical tools like common size balance sheet, balance sheet ratios etc.

When balance sheet exhibits the list of assets a business owns and liabilities that the business owes, common size balance sheet and balance sheet ratios provide a detailed picture of the financial position of the concern. Therefore, it is better to describe the common size balance sheet and important balance sheet tools to know more about the firm's financial condition. In the common size statement all important items in the balance sheet are expressed as a percentage of shareholders' equity.

The statement reports that current liabilities are regularly paid out by the firm as it shows a decrease from year to year. In the first year, current liabilities accounts for around 50 percent of the shareholders' equity. However, it was reduced to 47 percent and then to 32 percent in the