Fiancial Information for managers - Coursework Example

The four financial statements are the income statement, balance sheet, the statement of retained earnings, and the statement of cash flow. The purpose of this paper is analyze and describe how managers can utilize ratio analysis to analyze the financial results of an enterprise. Managers can utilize the data contained in the financial statements to perform analysis of the financial state of the company. A technique that can be used by managers to analyze the financial performance of a corporation is ratio analysis.

Ratio analysis involves using financial formulas that utilize whose inputs are data retrieved from the financial statements of the company. There are different categories of financial ratios. Two of those categories are liquidity, profitability, and financial leverage ratios. In order to illustrate the value of ratio analysis this paper includes a ratio analysis of Marney Ltd. Appendix A shows financial ratios corresponding to the fiscal years 2008 and 2009. The ratios that are included in the analysis are gross profit margin, operating profit margin, current ratio, acid test ratios, average sales period, and average settlement period for account receivables.

The gross margin of a company is calculated by dividing net profit by sales (net income / sales). Managers should seek a high gross margin metric. Firms that have low gross margin are not attractive common stock investments because its profitability is poor and the firm may run the danger of ending up with negative net margins. Gross margin is considered a ratio of broad profitability (Garrison & Noreen, 2003). The gross margin of Marney Ltd in 2008 was 46.3%. The gross margin figure of the company is good.

In the following year the gross margin of the company was 41.4%. The movement in gross margin of the company from one year to the other was a reduction in gross margin of 4.9%. A reduction in gross margin is a bad sign. The reduction in gross margin could have occurred due to higher