Financial Ratio Analysis
(Fiscal year of 2009 and 2010)
Liquidity of the agency
Current ratios=current assets (cash+accounts receivable+inventory)current liability Current ratios (2009) = (9690+25391) / (6027+8399) = 2.43
Current ratios (2010) = (15799+10123+60333+32119) / (24813+5459) = 3.91 The two ratios show that in the fiscal year of 2009, for every dollar the agency owed, it had 2.43 dollars to pay. In the fiscal year of 2010, the liquidity got better because for every dollar the agency owed, it had 3.91 dollars to pay. The main reason is that the agency received donations and a large amount of grant for its new Program in the fiscal year of 2010 while there was neither grants receivable nor accounts receivable in the fiscal year of 2009.
Acid-test Ratio=current assets-inventorycurrent liabilities N/A The Acid-test ratio is not available since the inventory of the agency is zero.
Average collection period=account receivable daily credit sales (revenues365) Average collection period (2009) = 0 / (426159/365) N/A Average collection period (2010) = (60333+32119) / (575564/365) = 58.63 In the fiscal year of 2009, the agency did not have any types of receivables, which led to the unavailability of Average collection period ratio. However, due to the donations and grants in the fiscal year of 2010, we are able to run the ratio and got the time (58.63 days) it took the agency to collect its receivable money. Though there is no comparability between the two years, the fact that the agency started its average collection period should be a good thing for the agency.
Accounts receivable turnover=credit sales (total revenue)accounts receivable Accounts receivable turnover (2009) = 426159 / 0 N/A
Accounts receivable turnover (2010) = 575564 / (60333+32119) = 6.23 Again, we are unable to run the accounts receivable turnover ratio because no types of receivables the agency got in the fiscal year of 2009. From the ratio in the fiscal year of 2010 we know that accounts receivable was rolling over 6.23 times.
Inventory turnover ratio=cost of goods soldinventory N/A Since the inventory of the agency is zero, the inventory turnover ratio is unavailable.
Is management generating adequate returns on the agency’s assets? Operating income ROI=operating income (net income)total assets Operating income ROI (2009) = 29002 / 37125 = 78.12%
Operating income ROI (2010) = 1178 / 123153 = 0.96%
As we can see from the two ratios, there is a huge difference between the figures. The operating income ROI ratio in the fiscal year of 2009 shows that for every dollar the agency owned, 78.12% profit it made. While in the fiscal year of 2010, the profit had dramatically decreased to only 0.96%. It got much worse compared with the status in the fiscal year of 2009. Big decrease in net income and great increase in total assets are key factors of making the ratio so small in the second year. Though the total revenue increased significantly in the fiscal year of 2010, the agency spent almost all its revenues in the same year. The agency hired more staff, which increased the expenses on salaries, other compensations, and employee benefits. In addition, the agency updated its computers and purchased new office equipment (such as a fancy copy machine, locked cabinets to keep client files and other documents), which increased the total assets greatly as the denominator.
Operating profit margin=operating income (net income)sales (total revenues) Operating profit margin (2009) = 29002 / 426159 = 6.81%
Operating profit margin (2010) = 1178 / 575564 = 0.20%
The two ratios demonstrate that in the fiscal year of 2009, for every dollar that came in the agency because of its business, 6.81% profit had been made. In 2010 fiscal year, the situation got worse because the number dropped to only 0.20%. Great increase of contributions and grants received in 2010 fiscal year...