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Ratio And Financial Statement Analysis

2513 words - 11 pages

Ratio And Financial Statement Analysis
DATE: 04/09/2015

Table of Content
I. Executive Summary.....................................................................................3
II. Introduction..................................................................................................4
III. Financial statements tools and techniques...................................................4
IV. Exhibits…………………………………………………………………...10
V. Analysis of Results.....................................................................................11
VI. ...view middle of the document...

Finally, I will assess fund flow analysis, cash flow analysis and ratio analysis to analyze the company’s financial position over a four year period. This will be concluded by recommendations to the company, most important of which would be for the company to strategically allocate its resources in order to improve its overall efficiency

Financial statements in an analysis are useful as they provide insights on future indicators for an organization through financial ratio analysis. Financial statements purposes at predicting future viability and profitability of a firm, while ratio analysis is significant as it anticipates future conditions where the company should operate and facilitate its decisions strategically (Houston, 2014). In this report, I will employ both qualitative and quantitative data techniques to demonstrate the company’s position in its operations. Quantitative data refers to the information that plays a significant role in analyzing the performance of business of a firm (Easton et al, 2013); while qualitative data refers to information that can be statistically manipulated to quantify and verify data. Financial ratio is a quantitative analysis of a business performance. Financial analysis involves investigating the firms invested capital, profitability of the firm, efficiency of operations and debtors security.
Financial statements tools and techniques
Vertical analysis: this technique is carried out on loss and profit account and the result is expressed in percentage to express the total amount.
Horizontal analysis: this techniques involves comparing and analyzing financial data of the firm of two or more operational years.
Ratio analysis: this techniques shows calculated result being expressed from one number to the other.
Profitability ratios: this will evaluate the total effectiveness and performance of the firm.
Profitability analysis
Hamsters Limited realized profitability growth between 2007 and 2008. However, in 2009, the firm experienced significant drop in its Net income. In 2007 the firm had 4 percent return on equity that increased in 2008 to fourteen percent but again dropped to five percent in 2010. Likewise, there was an increase on return on assets but also decreased in 2009 (Houston, 2014). Comparably, the decrease was sharper to that of Return on equity as the return on assets was 2 percent in 2009 lower than 2007 which was 3 percent. Return on equity consist two main elements: return on debt and return on operating assets. Hamster Ltd 2008 RNOA deteriorated with 16 percent decline in 2008 to 5 percent in 2009. RNOA is important because it is used to measure the overall performance of the firm. The ROD element also deteriorated with 2008 attaining 13 percent and dropped to 3 percent negatively in 2009. On the one hand, the 2008 ROCE increased with 12 percent, implying that the budget employed by the firm yielded good returns before period of expansion translating to significant...

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