Ratio Analysis

Topics: Financial ratio, Financial ratios, Generally Accepted Accounting Principles Pages: 5 (984 words) Published: June 3, 2014
METHODIST UNIVERSITY COLLEGE GHANA
FACULTY OF BUSINESS ADMINISTRATION

LEVEL 300
FINANCIAL ACCOUNTING IV

RATIO ANALYSIS OF FML UN-AUDITED ACCOUNTS OF 2010 AND 2011

Name Index No Programme 1. Osumanu-Sulemana Amidu BBAA/ET/123001 Accounting 2. Emmanuel Addae BBAA/ET/ 117726 Accounting 3. Benedicta Mawunu BBAA/ET/121614 Accounting 4. Daniel Kwesi Derry 1011003571 Accounting

SUPERVISOR: William Kofi Offei-Mensah (OFF-MENS)
JUNE, 2014
From: Group 1 Members
To: William Kofi Offei-Mensah (Off-Mens)
Subject: Evaluation Of Fan Milk Ghana Ltd’s Un-Audited Financial Statement for the Years Ended, 31st December, 2010 and 2011. Date::2nd June, 2012
========================================================================== INTRODUCTION
The objective of this report is to present to you the evaluation of financial performance of Fan Milk Ghana Ltd for the years ended 31 December 2010 and 2011. The data used in this report is the un-audited financial report of Fan Milk Ghana Ltd for 2011 financial report. Please, find the attached “appendix” for the quantitative analysis of the figures used in this report.

1. COMMENTS ON THE RATIO’S
1.0 LIQUIDITY RATIO: This measures the firm’s ability to pay its bills or debt over the short-run without undue stress.

Current Ratio: this expresses the relationship between current asset and current liabilities. That is, how an economic entity can settle its short-term obligations with it available short-term resources in a given period. Fan Milk Ghana Ltd’s (FML) current ratio fell from 2.68:1 in 2010 to 2.52:1 in 2011. This appears as a result of increase in assets or liabilities.

Quick Ratio: This measures the ability of the firm to pay its short term obligation without relying on the sale of inventory. FML quick ratio on 2010 was 2.01:1 and that of 2011 was 2.52:1. This result may be accounted for either increase in current assets in 2010 increase in inventory in 2011.

1.2 ASSETS MANAGEMENT RATIO: This measures how effectively the firm is managing its assets. Inventory Turnover: this expresses the relationship between sales and inventory. The inventory turnover of FML was 10.66 in 2010 and 8.62 in 2011. This result may be accounted for by the increase in inventories.

Day Sale Outstanding: This expresses the relationship between receivables and average sales per day. FML Day Sales outstanding fell from 10.31 in 2010 to 7.29 in 2011. This appears as a result of increase in average sales per day.

Fixed Assets Turnover: This expresses the relationship between sales and net fixed assets. FML fixed assets turnover stood at 2.67 in 2010 and 3.07 in 2011. This appears as a result of a decrease in net fixed asset.

Total Assets Turnover: this expresses the relationship between sales and total assets. The total assets turnover of FML fell from 1.52 in 2010 to 1.38 in 2011. This result may be accounted for by as a result of increase in total assets.

1.3 DEBT MANAGEMENT RATIO: It measures the extent to which the firm uses debt to finance its operations. Debt Ratio: this expresses the relationship between total debt and total assets. FML dept ratio stood at 0.23 in 2010 and 0.21 in 2011. This appears as a result of increase in total debt and total assets.

Times Interest Earned: this expresses the relationship between earnings before interest and taxes and interest charge. FML times interest earned fell from 158.38 in 2010 to 144.34 in 2011. This result appears as a result of increase in interest charges.

1.4 PROFITABILITY RATIO:
This looks at the...
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