Accounting Ratio Analysis for Finances

invoice Ratio Analysis for FinancesRatio analysis is a expedient tool for analyzing monetary statements. Calculating symmetrys provide aid in catch the companys strategy and in understanding its strengths and weaknesses relative to other companies and over beat. They hindquarters sometimes be useful in identifying earnings management and in understanding the effect of accounting choices on the firms reported reachability and growth. Finally, the ratios befriend in obtaining a get around understanding of a firms legitimate hitability, growth, and put on the line which can improve forecasts of future profitability and growth and estimates of the cost of capital.In reviewing the basic financial ratios, we will examine the ratios of Best Buy for the fiscal geezerhood finish March 2, 2002 and March 3, 2001. Excerpts from Best Buys financial statements be included at the end of this document. Best Buy is a evolution company. The following table reflects the growth in s ales and income during the year ended March 2, 2002Reference http//www.docstoc.com/docs/4290867/calculating-ratiosA number of accounting ratios be use to measure different aspects of performance. Many of these be derived from a single ratio known as the return on capitol employed. Any business would inadequacy high return on their capitol as this is the return on of investments made. solely also they expect the return to be as high as possible against their competitors. If we look at the results of Marks and Spencer over the quint long time the ROCE fell from 24.88% to nonwithstanding 14.44% thats a pass away of 10.44% thus far. Compare that to the ROCE of neighboring which was 65.54 in 2005 and it stayed around until 2008 when it went upto 84.73 provided in 2009 that externalise come down to just 40.10 in 2009 despite the big fall Next look interchangeable they are outperforming label and spencer on the return of the capital investedAll businesses want to get as high profit as possible marks and spencers gross profit gross profit margin over the period of five days it has been stable if will look at amid 2006 and 2008 the gross profit margin stayed around 38% that figure saw a fall of just under 1% in 2009 but marks and spencer is doing damp than Next as the gross profit margin of next is depress that ms and comparing over the five years they continue to stupefy a fall in gross profit margin plainly between 2007 (27.77) and 2008 (28.51) they experienced an increase of just under 1% in 2009 that did not improve because it started to fall again lower than 2008The net profit margin of ms was looking was looking good up until 2009 as in 2008 it was 12.51 up from 9.38 in 2005 so it was good period however in 2009 that figure was 7.79 lower than the net profit margin of 2005. more than worryingly for ms next is outperforming them over the five years not only are they getting high net profit margin but also it is stable at around 14% between 2005 and 2008Sales per employeeThe asset disturbance is how hygienic the firm is putting its assets to work. The ratio indicates that the asset overturn of Next is better that MS if we opposed between 2005 and 2008 however ms look care they gained ground in 2009 when their asset turnover was 3.41 up from 1.74 in 2008 compared this to next in 2008 Nexts asset turnover was 5.66 this was high than ms 2008 asset turnover but in 2009 next that figure fell down to just 3.06 and this lower than ms if we compared the same year.The bourgeon turnover of ms has been experiencing downward trend in the gone five years the 2005 stock turnover was 23.38 but continouos fall in the next four years meant ms stock was turning over 16.91 however the decrease in stock turnover ms will be encouraged that their competitor next is doing worst than them as their stock turnover was just 10.27Debtors turnover and debtors show periodThis ratio indicates the speed with which debtors/accounts recievable are being collected, thus it is indicative of efficiency of trade management. The higher the ratio and piddlinger collection period the better the trade credit management and the better is the liquidity of the debtors and visa versa.we can understand that the control of credit operate by MS is far better than Next. The debtors turnover being 108.53 and the debtor collection period being approximately 3 years compare to 5.77 for the debtors turnover and 63 days for the debtor collection period for Next. Businesses commonly operate on a 30, 60 or 90 days policy in terms of debt of allowance.Creditor collection periodThis ratio reflects the time it takes the company to commit its suppliers. Thus, the longer you can hold off sufferment the longer you have cash on disposal. We can see that the creditors collection period is low (roughly 14 days) compare to next (approximately 22 days) to pay their debts. So marks and spencer might want to look in to ship canal of ameliorate re lation backship with suppliers so that they have enough time to pay them.Current ratioThe up-to-date ratio is the ratio of total current assets to total current liabilities. The current assets of a firm represents those which can be in the ordinary business, converted in to cash within short period of time. Marks and spencer current ratio decreased in the past five years from 0.65 in 2005 to 0.60 in 2009 and the company is below the subject field bonny which is 1.81, next is doing better than ms even so though they are also still below national average with a current ratio of 1.541 in 2009 but that is far from national average like ms.Acid testthis ratio specifies whether your current assets that could be chop-chop converted into cash are sufficient to cover current liabilities. Until recently, a Current Ratio of 21 was considered standard. A firm that had spare sufficient quick assets available to creditors was believed to be in sound financial condition.Again just like the c urrent ratio both companies are operating below the national average. MS acid test did not show much improvement over the past five years if we compare it to next in the same period 2005 of the both companies was 0.391 for MS and 0.821 for next however if we look the departure between the two companies ms is 0.371 lower than 2005 but next is improving slightly with acid test of 1.091 in 2009.Gearing ratioThe gearing ratio reflects the amount of finance raised from the banks in relation to the total capital employed. If the gearing ratio is around 40% it is marvellous that a bank would make any further loans. We can see that both companies are far higher up the 40% and therefore even though they have good reputations it may cause some problems when obtaining loan. This in reality needs to be looked at and MS must be relate about this. However, very large company generally operate above this rate.Reference http//www.scribd.com/doc/19208907/Financial-Analysis-of-IDEAPart 3UK is pa ssing through a strong economic downturn and overall spending by the consumers is consistently decreasing. The economic growth of UK over the last three years is easily and consistently declining1with forecasts for negative growth in 2009 and some recovery in 2010. These trends also indicate that almost every sector of the economy will be affected with the slow down in the consumer spending collectable to credit crunch.It is critical to note that there is a marked difference between the corporate genial responsibility of the firm as well as improving the overall corporate image of the firm. Linking corporate social responsibility with the improvement of corporate image therefore is something which most of the companies move to achieve. (Moir, 2001). At the moment it looks like ms has escaped from criticism like child labour