Financial statement analysis Essay Example | Topics and Well Written Essays - 1750 words

Financial statement analysis - Essay Example Supplies is a public company which is engaged in the business of manufacturing and supplying of different electrical components. This study is about the financial ratio analysis of the company for the years 2011 and 2012 The ratio analysis has been performed with the help of the financial information present in the company’s financial statements. Different types of ratios have been calculated and divided into three categories, namely, liquidity ratios, activity ratios and profitability ratios. The liquidity ratios calculated for the company indicate that the company was able to generate more ash revenues in the year 2012 as compared to 2011, and this resulted in improvement in its liquidity position in the year 2012. As regards its activity ratios, the company management was able to manage its receivables more efficiently in 2012 but was not able to manage its inventories that efficiently in the year 2012. Next, regarding its profitability ratios, the company managed to genera te more profit in 2012 and thereby improved its profitability position significantly. However, industry ratios were not used for comparison in this study, which is one of the limitations of this analysis. A4M1 Supplies is engaged in the business of manufacturing and supplying different types of electrical components in the market. This study analyses the financial statements of A4M1 Supplies Company for the years 2011 and 2012. The performance and efficiency of an organization can be evaluated through proper analysis of its financial statements ... It includes calculations of various ratios, which helps in the measurement of the financial performance of a company (Siddiqui, 2006, p.623). Various financial ratios of the A4M1 Supplies have been calculated and interpreted in this study. The ratios have been divided into three categories to indicate the liquidity, activity and profitability position of the company in 2011 and 2012. Analysis of the Liquidity Position of the Company The liquidity position of a company can be better understood trough the use of the liquidity ratios, which have been explained in details in this section. The company's ability to fulfill its current existing liabilities is measured through its liquidity ratios. These liquidity ratios are important for a company like A4M1 Supplies because if the company fails to meet such obligations, it might result in the bankruptcy of the company (Gallagher & Andrew, 2007, p. 94). The liquidity ratios computed for A4M1 Supplies include its current ratio, quick ratio or acid test ratio and cash ratio (Appendix - 1). i. Current Ratio This is one of the commonly used liquidity ratios of a business organization. It helps measure the ability of a company of meeting its existing short-term liabilities (Megginson, & Smart, 2008, p. 49). It is calculated as the ratio of the current assets owned by the firm to its existing current liabilities. The current ratio calculated for the company indicates that it has improved in 2012 as compared to 2011. It means that the company managed to improve its liquidity position in the year 2012 and 178% of the current liabilities of the company are available as liquid assets in the form of current assets of the company. ii. Quick Ratio Quick