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...

...RatioAnalysisRatioanalysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Financial statement ratioanalysis focuses on three key aspects of a business: liquidity, profitability, and solvency.
Liquidity ratios
Liquidityratios measure the ability of a company to repay its short‐term debts and meet unexpected cash needs.
Current ratio. The current ratio is also called the working capital ratio, as working capital is the difference between current assets and current liabilities. This ratio measures the ability of a company to pay its current obligations using current assets. The current ratio is calculated by dividing current assets by current liabilities.
This ratio indicates the company has more current assets than current liabilities. Different industries have different levels of expected liquidity. Whether the ratio is considered adequate coverage depends on the type of business, the components of its current assets, and the ability of the company to generate cash from its receivables and by selling inventory.
Acid‐test ratio. The acid‐test ratio is also called the quick...

...RatioAnalysisRatioanalysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Financial statement ratioanalysis focuses on three key aspects of a business: liquidity, profitability, and solvency.
Liquidity Ratios
Liquidityratios measure the ability of a company to repay its short‐term debts and meet unexpected cash needs.
Current ratio
The current ratio is also called the working capital ratio, as working capital is the difference between current assets and current liabilities. This ratio measures the ability of a company to pay its current obligations using current assets.
Current Ratio = Current Assets / Current Liability
Quick ratio
Current Ratio = Quick Assets / Current Liability
Inventory turnover
The inventory turnover ratio measures the number of times the company sells its inventory during the period. It is calculated by dividing the cost of goods sold by average inventory. Average inventory is calculated by adding beginning inventory and ending inventory and dividing by 2.
Inventory Turnover ratio = Cost of Goods Sold / Average inventory
Debtors...

...Financial ratioanalysis
A reading prepared by Pamela Peterson Drake
OUTLINE
1.
2.
3.
4.
5.
1.
Introduction
Liquidity ratios
Profitability ratios and activity ratios
Financial leverage ratios
Shareholder ratios
Introduction
As a manager, you may want to reward employees based on their performance. How do you know
how well they have done? How can you determine what departments or divisions have performed
well? As a lender, how do decide the borrower will be able to pay back as promised? As a manager of
a corporation how do you know when existing capacity will be exceeded and enlarged capacity will be
needed? As an investor, how do you predict how well the securities of one company will perform
relative to that of another? How can you tell whether one security is riskier than another? We can
address all of these questions through financial analysis.
Financial analysis is the selection, evaluation, and interpretation of financial data, along with other
pertinent information, to assist in investment and financial decision-making. Financial analysis may be
used internally to evaluate issues such as employee performance, the efficiency of operations, and
credit policies, and externally to evaluate potential investments and the credit-worthiness of
borrowers, among other things.
The analyst draws the financial data needed in financial...

...Ratio and Comparative analysis
There are many ways to evaluate and compare financial statements. Although there are many different ways and devices, no one device is more useful than another. According to "Financial Statement Analysis Primer" (n.d.), ”Every situation faced by the investment analyst is different, and the answers needed are often obtained only upon close examination of the interrelationships among all the data provided.”.Ratioanalysis is a useful tool that is used to identify a quick indication of a firm’s financial performance in several different areas. Comparative analysis is used when comparing the same information for two or more different dates or periods. At my current workplace, we use comparative analysis to see how certain products or classes sell during the same dates but for the past few years. This helps us prepare our merchandising and presentation efforts.
The Comparative is the express between two entities or groups quantity and degree. Ratioanalysis is the backbone on the financial statements, For Example the line items of Balance sheet, Income statement, and Cash flow statement, one or all can be calculate to evaluate company’s financial activity such as liquidity, operating, liabilities or revenues and expenses of the business. Also the ratioanalysis help to see if the company...

...
RATIOANALYSIS
Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratioanalysis can predict future bankruptcy.
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:
1. Liquidity ratios
2. Capital Structure and Solvency
3. Return On Investment
4. Operating Performance
5. Asset Utilization
6. Market Measures
The ratios measure the short term ability of the company to pay its current short-term liabilities.
1. Liquidity Ratio
Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.
i. Current ratio:
The current ratio is the ratio of current assets to current liabilities
The company have decreasing trend in current ratio...

...Management Accounting
IMPORTANCE OF RATIOANALYSISRatioanalysis is a tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratioanalysis is predominately used by proponents of fundamental analysis.
The ratioanalysis is one of the most important tools of financial analysis. The various groups of people having different interest are interested in analysing the financial information. These groups use the analysis to determine particular financial characteristics of which they are interested. The importance of ratioanalysis can be summarized for various groups of peoples vested with the diversified interests are as under:
1. For short term creditors – The short term creditors like bankers and suppliers of materials can determine the firm’s ability to meet its current obligation with the help of liquidity ratio and quick ratio.
2. For long term creditors – The long term creditors like debenture holders and financial institutions can determine the firm’s long term financial strength and...

...-------------------------------------------------
Assignment 2012/2013 – Semester 2
-------------------------------------------------
B. Com (Major in Banking and Finance) – Year III
-------------------------------------------------
RatioAnalysis Report
-------------------------------------------------
Student: Kevin Galea 205891 (M)
-------------------------------------------------
Lecturer: Dr. Emanuel Camilleri
Introduction
The purpose of the following report is to aid Build-It Ltd in planning the direction that the company may want to go over the next few years. The report entails a financial analysis which will give the directors an understanding of how well the company is performing.
Figures were obtained from comparative balance sheets and profit and loss statements from the last two years. This information enabled the development of percentage and ratioanalysis (see appendices), which was then used to create the report.
Profitability RatiosAnalysis
Profitability refers to the ability to make profit from the company’s business activities. It shows how efficiently the management can make profit by using all the resources available.
A very important ratio is the Return on Capital Employed (ROCE). This shows the profit made in relation to the resources employed. Build-It Ltd’s ROCE ratios for 2011 and 2012 were...

...1. What are the five major categories of ratios, and what questions do they answer?
* Liquidity: Can we make required payments as they fall due?
* Asset management: Do we have the right amount of assets for the level of sales?
* Debt management: Do we have the right mix of debt and equity?
* Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in NPM, ROE, and ROA?
* Market value: Do investors like what they see as reflected in P/E and M/B ratios?
2. What is the Significance (Importance) of Financial Ratio in Decision Making?
* Ratios facilitate comparison of:
* One company over time
* One company versus other companies
* Ratios are used by:
* Lenders to determine creditworthiness
* Stockholders to estimate future cash flows and risk
* Managers to identify areas of weakness and strength
In Detail:
* For Short term Creditors – The Short term creditors like bankers and suppliers of material can determine the firm’s ability to meet its current obligations with the help of liquidity ratios such as current ratio and quick ratio.
* For Long Term Creditors – The Long term creditors like debenture-holders and financial institution can determine firm’s long term financial strength and survival with the help of leverage or capital structure...