Business and Management - Essay Example

is reveals that instead of having loads of weaknesses, the organization gained higher profits in comparison to the previous year and industry average. Increment in the sales volume and sales amount had the highest contribution to make this possible. Effective cost management can also be considered as the contributing factor. Lower Gearing Ratio: Basically gearing ratio indicates the relationship between the equity capital and debt. The reason behind calculating this ratio is to determine the long term financial position of the firm and risk factor associated with the organization.

Gearing ratio reveals the sustainability of capitalization of the organization. In that case, it can be concluded that being comparatively low geared in comparison to the industry, the company has a scope of taking more debt. Lower Acid Test Ratio: Acid test ratio is more important than the current ratio as CR does not consider value of inventory. Therefore, it can be assumed that acid test ratio indicates more accurate financial position of the organization than the current ratio. Basically according to the rule of thumb, the standard ratio is perceived to be 1 for this particular ratio but it is quite lower in this case.

Even the acid test ratio of the company of 2009 is not only lower than 2008 but also from the industry average. Therefore it can be considered as the weakness for the company. Here it is important to mention that there is huge difference in the result of the two years. There is a 57.59% fall in acid test ratio in the year of 2009 when compared with 2008. Zero bank balance can be blamed for this significant change. Again in 2008, there was no bank overdraft, which again had the contribution to enhance the acid test ratio.

A lower liquidity ratio refers that the financial position of the company is not sound enough to meet the current obligation immediately. Lower Current Ratio: The current ratio of the organization in the year 2009 is 1.15 and it refers that current