Ratio Analysis

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* Contents Page
1. Introductionp.g 2
2. Analysis
2.1 Liquidityp.g 2
2.2 Profitability p.g. 2
2.3 Operating Efficiencyp.g. 3
2.4 Financial Stability p.g. 4
2.5 Analysing Shares as an investmentp.g. 4
3. Conclusionp.g. 5
4. Recommendationp.g. 5

Introduction:

This report provides investment advice based on a financial analysis of the food manufacturing companies, Worrnambool Cheese and Butter Factory Company Holdings Ltd. (WCB) and Select Harvests Ltd. (SHV). Both companies will be evaluated by liquidity, profitability, operating efficiency, financial stability and the shares as an investment. Horizontal trends are examined across the years 2010 and 2011, both within each company and head-to-head. And then conclusions are drawn and an investment recommendation is offered based on the conducted analysis. Appendices A to E contain the detailed financial ratio and trend calculations to support the analysis. Analysis:

Liquidity:

In 2010, the SHV current ratio (1.44) was 28% higher than WCB’s (1.09). But in 2011 WCB saw a 49% increase over the previous year in its current ratio. This resulted in WCB closing the gap between its 2011 current ratio (1.63) and that of SHV (2.00), to 23%. SHV’s acid-test ratio, whilst still better than WCB’s, was only 8.5% and 15% in 2011 and 2010 respectively. This is explained by the significant improvement in WCB’s acid-test ratio between 2010 and 2011 of 43%, as opposed to SHV’s improvement over the same period of just 34%. Nevertheless, SHV maintained more liquid assets than WCB over both 2010 and 2011 and thus should be considered a more liquid company. Profitability

In regards to the rate of return on net sales, when comparing SHV to WCB for both 2010 and 2011, SHV is doing better than WCB by 243% and 92% respectively. However, looking at each company separately from 2010 to 2011, SHV’s profit margin has decreased by 1% whereas WCB has increased by 76%. For rate of...
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