Financial Analysis of C&V Fashions
From the trading account, profit and loss account and the balance sheet, the solvency or liquidity, profitability and performance can be worked out for 2008 for C & V Fashions. These types of ratios can be analysed once worked out to assess the performance of the business.
The current ratio and acid test ratio both show that C & V Fashions were solvent this year and that they are able to pay of their debts. As well as being able to pay off their debts, the business has some capital left over which is doing nothing and can be used for various purposes such as investments or extra materials. The current ratio states that the business has over £3 of current assets for every £1 of current liabilities. The acid test ratio covers the problem with the stock in the current ratio as there may be out of date or obsolete items but also it is a possible source of cash to pay of debts. The acid test ratio states that C & V Fashions will be able to pay their creditors and pay of their current liabilities easily as the ratio is over 1:1. Even with the least liquid current asset, the business will have spare capital to use therefore the performance of the business is very good shown through these ratios.
The profitability ratios for this business analyse how profitable they will be after all the ratios are worked out. The gross profit margin shows that the business is selling most of their stock and receiving quite a lot of gross profit. The ratio gives a high percentage therefore the profitability of the business is better and there is more gross profit available to meet expenses as there is lower cost of sales. As shown by the net profit margin ratio, there has been no increase in expenses and there is a lot of net profit available to the owners due to the fact that the expenses are much less than the gross profit. Although this may be the case, the profitability of C & V Fashions has decreased by almost a half from the gross profit to the net profit margin.
The current ratio and acid test ratio both show that C & V Fashions were solvent this year and that they are able to pay of their debts. As well as being able to pay off their debts, the business has some capital left over which is doing nothing and can be used for various purposes such as investments or extra materials. The current ratio states that the business has over £3 of current assets for every £1 of current liabilities. The acid test ratio covers the problem with the stock in the current ratio as there may be out of date or obsolete items but also it is a possible source of cash to pay of debts. The acid test ratio states that C & V Fashions will be able to pay their creditors and pay of their current liabilities easily as the ratio is over 1:1. Even with the least liquid current asset, the business will have spare capital to use therefore the performance of the business is very good shown through these ratios.
The profitability ratios for this business analyse how profitable they will be after all the ratios are worked out. The gross profit margin shows that the business is selling most of their stock and receiving quite a lot of gross profit. The ratio gives a high percentage therefore the profitability of the business is better and there is more gross profit available to meet expenses as there is lower cost of sales. As shown by the net profit margin ratio, there has been no increase in expenses and there is a lot of net profit available to the owners due to the fact that the expenses are much less than the gross profit. Although this may be the case, the profitability of C & V Fashions has decreased by almost a half from the gross profit to the net profit margin.