Financial Analysis Plays a Critical Role in Evaluating Company’s Performance

Good Essays
Financial analysis plays a critical role in evaluating company’s performance. When we analyse the financial statement, there are two ways, ratio analysis and cash flow analysis. With the financial statement of company Gunting Ltd, I will use the ratio analysis to discuess the poor side of Profitability, Liquidity, Efficiency of the asset useage and Leverage of Gunting Ltd from 2006 to 2008.
Profitability
ROE is comprehensive indicator of an organisation’s performance since it provides an indication of how well managers are employing the funds invested by the organisation’s sharehoulders to generate funds. From the ratios in the previous table, Gunting Ltd’ s Reture on equity ratios slumped from 11.2% to 1.89% from 2007 to 2008. The company experience a dramatic decline during the GFC period and the managers didn’t generate efficient funds to its shareholders. In addition, compare with other companies, Gunting Ltd’s ROE ratio is suitable in the bottom, all the two year ratio is quite low, especially in 2008. Furthermore, there are three drivers for the Return on equity of an organisation, the net profit margain, asset turnover and financial leverage will be discuessed later.
Net profit margin is the first driver of an organisation’s Return on equity and it shows the profitability of the company’s operating activities. From the table, net profit margin declined from 9.73% to 3.6% in 2008(only about one third of that in 2007), it seems that the company has operaing problems from 2007 to 2008 and only able to ratain 3.6 cents in net operating profits for each dollar of sales. Compare to EBIT margin, the Gunting Ltd’s EBITDA margain which excludes depreciation and amortisation expense is larger which indicates that the depreciation and amortisation expense plays a important role of the operating process of Gunting Ltd. The EBITDA margin also experience decline from 18.67% to 6.53%. Profit slump is maybe result of the cut price strategy to boost the sales during

You May Also Find These Documents Helpful

  • Satisfactory Essays

    EVALUATING FINANCIAL PERFORMANCE 1 Prepared by: Kha Pham CHAPTER OBJECTIVES  The principles of interpretation of financial information, especially the importance of comparisons  Why non-financial information is needed to supplement financial information  How to calculate and interpret profitability ratios, especially ROCE and its components  How to analyse a company’s borrowings in terms of gearing and interest cover 2 CHAPTER OBJECTIVES (CONT’D)  How to calculate liquidity and…

    • 802 Words
    • 12 Pages
    Satisfactory Essays
  • Powerful Essays

    FINANCIAL PERFORMANCE ANALYSIS Financial performance analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing the relationship between the items of balance sheet and profit and loss account. It also helps in short-term and long term forecasting and growth can be identified with the help of financial performance analysis.The dictionary meaning of ‘analysis’ is to resolve or separate a thing in to its element or components parts for tracing…

    • 4275 Words
    • 18 Pages
    Powerful Essays
  • Powerful Essays

    LITERATURE Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a tool in decision-making processes related to stocks, bonds, and other financial instruments. Analysis of financial statements provides valuable information for managerial decision. Financial analysis is commonly called analysis and interpretation offinancial statement. Analysis of financial statements means establishing…

    • 1727 Words
    • 7 Pages
    Powerful Essays
  • Powerful Essays

    The Company was incorporated as Public Limited Company on 8th January, 1993 at Bangalore and obtained Certificate of Commencement of Business on 21st January, 1993. The Company has set up a project to manufacture 32 lakh Sq.inches p.a of Hybrid Micro Circuits and 44 lakh sq.inches p.a. of Resistor Networks (passive HMCS) at Yelahanka, Bangalore. The…

    • 3338 Words
    • 14 Pages
    Powerful Essays
  • Good Essays

    tools of financial analysis and the knowledge to apply them and interpret the results” Finance is defined as the administrative function in an organization which relate with the arrangement of cash and credit to the organization to carry out its objectives as satisfactory as possible. Financial analysis is the process of identifying the financial strengths and weakness of the Firm by properly establish relationships between the items of Balance sheet and the Profit and Loss account. Financial Analysis…

    • 21467 Words
    • 86 Pages
    Good Essays
  • Good Essays

    Evaluating my own performance within a team: In one team where I was a team leader, I had an important responsibility to help build and encourage team members. I made sure that I supported all team members and motivated everyone and made them feel valued. I also made sure that I delegated tasks and trusted team members. The reason why I delegated tasks out to all team members was because as a team member, I did not want to do so most of the work myself because some team members choose to do less…

    • 3179 Words
    • 13 Pages
    Good Essays
  • Better Essays

    International Business Research; Vol. 5, No. 8; 2012 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education A Model for Evaluating Financial Performance of Companies by Data Envelopment Analysis A Case Study of 36 Corporations Affiliated with a Private Organization Reza Tehrani1, Mohammad Reza Mehragan1 & Mohammad Reza Golkani1 1 School of Management, University of Tehran, Tehran, Iran Correspondence: Mohammad Reza Golkani, School of Management, University…

    • 5121 Words
    • 21 Pages
    Better Essays
  • Powerful Essays

    A PROJECT REPORT ON FINANCIAL PERFORMANCE ANALYSIS AT MEERA DESIGNS Project submitted in partial fulfilment for the award of the Degree of Master of BusinessAdministration By: SHIVA SHANKAR PATIL (H.T.No:2356-11-672-031) Under the guidance of MR. RAVI KUMAR. [pic] DEPARTMENT OF BUSINESS MANAGEMENT KARUNA P.G. COLLEGE OF COMPUTER APPLICATIONS (Affiliated…

    • 12548 Words
    • 51 Pages
    Powerful Essays
  • Good Essays

    | MERTON TRUCK | Memorandum To: President From: Date: ------------------------------------------------- Re: Merton Truck Company Introduction In response to your report and request regarding Merton’s financial performance and product mix, I have met with your controller, sales manager and production manager, and have provided a solution that will improve the company in these two areas. Using a systematic approach, I was able to analyze the current machine hours, standard costs, and…

    • 1821 Words
    • 53 Pages
    Good Essays
  • Powerful Essays

    Leadership and Organizational Behavior – BUS 520 May 11, 2011 This case illustrates Allstate insurance company’s’ diversity strategy to improve performance. I will discuss Allstates’s goal setting process as it relates to the goal setting model and how the competitive advantage Allstate has from the development of their Diversity Index. I will also give my recommendation on the types of high-performance reward system Allstate should use to motivate its employees to reach their diversity goals, as well…

    • 1094 Words
    • 5 Pages
    Powerful Essays