Ratio Analysis Report
EXECUTIVE SUMMARY
The purpose of the following report is to aid Over the Hill Pty Ltd in planning the direction that the company may want to go over the next few years. The report entails a financial analysis and summaries, which will give the executive board an understanding of how well the current managing director is performing, and whether his contract should be renewed.
Figures were obtained from comparative balance sheets and profit and loss statements from the relevant years as well as additional information that was forwarded by the board. This information enabled the development of percentage and ratio analysis (see appendices), which was then used to create the report.
The investigation revealed that the company had improved its position compared to previous years. The profitability of the company was significantly better whilst the liquidity had remained reasonably steady. The solvency of the company had declined however, which affected the long-term obligations of the business.
Overall, the company is in a much sounder position than it had been a few years earlier. The management style of Mr Vinloony has improved the direction of the business and the forthcoming results have come reasonably promptly. It is therefore recommended that Mr Vinloony’s contract is extended for a further period as designated by the board to enable the company to continue its growth.
PROFITABILTY
Over the Hill Pty Ltd on initial viewing seems to have had a fairly successful year in 2002 in comparison to its previous years. An analysis of the Vertical, Horizontal and trend analysis shows significant growth in 2002 (up 230%) in net profit compared to negative results in previous years. This is due to a combination of growth in net sales (up 18.18%) and a decrease in the operating expenses of the business (-1.16%) compared to 2001. The cost of goods sold did increase between 2002 and 2001 but was still under the percentage growth of the net sales.
The return
The purpose of the following report is to aid Over the Hill Pty Ltd in planning the direction that the company may want to go over the next few years. The report entails a financial analysis and summaries, which will give the executive board an understanding of how well the current managing director is performing, and whether his contract should be renewed.
Figures were obtained from comparative balance sheets and profit and loss statements from the relevant years as well as additional information that was forwarded by the board. This information enabled the development of percentage and ratio analysis (see appendices), which was then used to create the report.
The investigation revealed that the company had improved its position compared to previous years. The profitability of the company was significantly better whilst the liquidity had remained reasonably steady. The solvency of the company had declined however, which affected the long-term obligations of the business.
Overall, the company is in a much sounder position than it had been a few years earlier. The management style of Mr Vinloony has improved the direction of the business and the forthcoming results have come reasonably promptly. It is therefore recommended that Mr Vinloony’s contract is extended for a further period as designated by the board to enable the company to continue its growth.
PROFITABILTY
Over the Hill Pty Ltd on initial viewing seems to have had a fairly successful year in 2002 in comparison to its previous years. An analysis of the Vertical, Horizontal and trend analysis shows significant growth in 2002 (up 230%) in net profit compared to negative results in previous years. This is due to a combination of growth in net sales (up 18.18%) and a decrease in the operating expenses of the business (-1.16%) compared to 2001. The cost of goods sold did increase between 2002 and 2001 but was still under the percentage growth of the net sales.
The return
References: Hoggett/Edwards 2000, Accounting in Australia, Fourth Edition, John Wiley & Sons, Australia. Mills/Call/Drew 1996, Foundations of Accounting 9th Edition, University of New South Wales Press, Sydney. Trotman/Gibbins 1998, Financial Accounting: An integrated approach, Nelson ITP, South Melbourne. Tracy J, 1997, Accounting for Dummies, IDG Books Worldwide Inc, USA.