Question no 1: Part 1 Financial statement analysis refers to a process of evaluating financial performance of an entity and its financial position in relevant: Period of time Industry or social factors Economic or financial environment in which company is operating So that proper decision may be made at suitable time. In other words, you can say that ratio analysis explores pros and cons of the entity and is handy technique for the investors to observe the position and performance of the entity. Stakeholders of the company whether they are current or prospective are intended to obtain and to ensure the financial position and financial performance of the company in which they are going to invest. As Al Araqi trading company is willing to sell themselves that’s why these ratios are become more important to evaluate the company’s position and performance. These ratios are based on the financial statements prepared by the management and normally audited by the auditor of the company. The purpose of these ratios is to facilitate the investors to ensure that whether they are investing rationally or not. Though these financial statements are structured in a manner to evaluate company’s position but it is also necessary to conduct analysis of these. This analysis is given below. The financial statements are first source to prepare these ratios. The ratios are based on following statements. • Statement of financial position • Income statement • Statement of changes in equity • Statement of cash flow • Notes to the accounts or disclosures. These ratios are tabulated below. These are primarily categorized in profitability, activity, gearing and solvency ratios. Profitability Ratio: As we know that main concern of the businesses are ... ... middle of paper ... .... As per market analysis it is revealed that the Small and medium-sized enterprises (SMEs) are 16 % contributor towards the GDP of Oman. These SMEs has a maximum range of 100 employees which is very low if compared with other public companies but are still contributing in the state’s GDP. As per the statistics published by the Ministry of Commerce and Industry (MoCI), SMEs are businesses with minimum number of employees as mentioned above but have high annual sales of Omani Riyal 1.5m ($3.8m). On the basis of size and volume of sales, businesses are categorized into: 1. Micro, 2. Small, and 3. Medium-sized. According to the report released by the World Bank Group’s International Financial Corporation Oman had a lower density of SMEs per capita, in the past. In Oman there are less than 10 per 1000 people, compared to more than 30 per 1000 people in Saudi Arabia.
Financial ratios are "just a convenient way to summarize large quantities of financial data and to compare firms' performance" (Brealey & Myer & Marcus, 2003, p. 450). Financial ratios are very useful tools in order to determine the health of a company, help managers to make decision, and help to compare companies that belong to the same industry in order to know about their performance.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
The financial ratios of an organization are compared to other companies that it competes with or with the average of similar industries in the same sector.
A crucial facet of the examination of strengths and weaknesses of a business is a financial analysis. Financial analysis is comprised of ratio analyses, trend analyses, and comparisons with other companies. Financial ratios can be categorized consistent with the data they deliver. Financial ratios are valuable gauges of a business's operation and fiscal condition. Most ratios can be computed from information delivered by the financial statements. The following categories of ratios are commonly used: Liquidity ratios, Financial Leverage ratios, Turnover ratios, Profitability ratios, and Market Value ratios. A full financial profile of Panera Bread and their key competitors can be found in Table 3.
I will be comparing five types of financial ratios through statement of comprehensive income and balance sheet, as follows:
It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business.
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
This section will discuss ratio analysis for the following ratios: current ratio, quick (acid-test) ratio, average collection period, debt to assets ratio, debt to equity ratio, interest coverage ratio, net profit margin, and price to earnings ratio. Depending on the end user which ratio carries more importance, however, all must be familiar with ratio analysis. Details on each company's performance for each of these areas can be found in the attached ratio analysis worksheet.
Information on the financial statement can offer an overview of a company’s performance over the past fiscal year. However, gaining crucial investment insights requires financial manipulation that yields financial ratios.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
These ratios measure the aspects of profitability like rate of profit on sales, whether the profits are increasing or decreasing.
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
These accounting information are so much important for the business owner or financial statements reader to analyze the company and make the economics decision.
Income statement-: Income statement is the financial statement that measures a company 's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.