Financial statements interpretation Essay Example | Topics and Well Written Essays - 1250 words

Financial statements interpretation - Essay ExampleThe main reason is that the ratios ar simple to calculate. Moreover, they provide a standard for comparison between companies or between the company and the perseverance in general. They endure also be applied to various time periods of the same company and go off provide valuable information related to the trend and future prospects (Pendlebury and Groves, 2004). The ratios that are chosen for analyzing VDB Limited implicate Operating Profit Margin, Return on Assets, up-to-date Ratio, Quick Ratio, Average Collection Period, Stock upset period. The ratios are computed for VDB Limited outdoor staged on the financial statements provided for the two years. This will provide a base for comparison of theThe profit margin is the pulsation of the companys ability to earn profit from the generated revenue. This is a very alpha and crucial ratio as this depicts the earning capacity of the company (Samuels et al, 2000).It is clear fr om the values that the profit margin has declined steeply in 2008 relative to 2007. Though the revenue is much high in 2008, the purchases and the expenses are relatively higher and hence lesser profits.This ratio measures the in acclaim generating ability of the assets. ... This ratio is necessary, since the income or the earnings is given higher immensity and a company should not only have high revenues, but should also earn the income from it. The gift on assets is computed asReturn on Assets = ( last-place Income / Total Assets) * 100Profitability20072008Return on Assets10.53%7.89%It is obvious that the assets are not being utilized at the same level as that of 2007. The income generating ability of the assets has come down in 2008. iii. topical RatioThe current ratio is a measure of the companys ability to hold out its current liabilities using its current assets (Samuels et al, 2000). It is computed as Current Ratio = Current Assets / Current LiabilitiesRatio20072008Curr ent Ratio3.162.96The current ratio is a measure of liquidity and it indicates that VDB Limited is well positioned in price of liquidity and will be able to cover its liabilities. Though the ratio has reduced in 2008, it is noneffervescent very substantial and a healthy value.iv. Quick RatioThe quick ratio is a measure of the companys ability to cover its current liabilities using its liquid assets. The assets included in this ratio are those which can be easily converted to cash (Samuels et al, 2000). It is computed as Quick Ratio = (Current Assets - Inventories) / Current LiabilitiesRatio20072008Current Ratio1.51.48VDB Limited has sufficient liquid assets to cover the current liabilities. There is no change in the quick ratio in 2008. v. Average Collection PeriodThe time period (no. of days) taken to apprehend the receivables is a crucial measure that illustrates the companys ability to collect the debts (Samuels et al, 2000). It is computed asAverage Collection Period = (Averag e (net) Receivables) / Net Sales) *