Essay: Produce the reflective commentary

Ans 1: Ratio Analysis Result

Question No. 2:

You are required to produce the reflective commentary (maximum 1500 words) on your answer to Question 1. Your answer should discuss the limitations of your methodology and a comment on what other information and methods would be necessary to enable a complete analysis. Your answer may also contain a reflection on your own learning from this exercise

FINANCIAL STATEMENT ANALYSIS:

Objective:

The main objective of study is to assess the financial reporting for MG Fabrications plc and to examine the financial performance by its financial statement of three years period.

To analyze and interpret the financial statement for decision making process.

A number of methods are used to study the alliance between various statements but Ratio Analysis is generally used.

Interpretation:

From the analysis it is clear that there was a good growth in total sales. The sales has been increased in 2009 up to £ 472304.40, compare to previous year 2008 sales (£299875.81309).As well as the year 2010 sales has been rise in sales up to £ 652229.89.

The cost of sales also has been increased with (£53686.35) in 2008 to 2009 and with (£161183.25) in 2009 to 2010 and as well there was good growth in net profit compared to three years.

From the statement of comprehensive income statement sales and cost of sales has been increased in consecutive years.

Ratio Analysis:

Financial ratio analysis is all about mathematical calculations & comparisons of financial values which are adopted from the company’s financial statements like balance sheets. Trends of these ratios can be used to make analysis against results and give report on company’s financial position.

Based on Ratios Analysis there are various ratios which have been implicated and analysed to identify the financial performance of an organization. The implications are as follows:

Current Ratios:

The ratio of current assets and current liabilities gives the current ratio. From the above analysis we can observe that there is step by step increase in current ratios compared to three years. There is gradual raise in the ratios from 3.83(2008), 4.2(2009) and 5.2(2010) in the three respective years.

Quick Ratios:

It’s a ratio between current assets and current liabilities without inventory. Likewise, the current ratios have been altered evaluating subsequently from 3.38, 3.75 and 4.6 in 2008, 2009 and 2010. This illustrates that there is an increment over the three years.

Debtor Days:

Shows that whether debtors have been allowed extreme credit .This ratio must be under industry average. If exceeds that we may have report complaints on firm’s debts. In general the lower the value in this ratio is working fine for the firm. Gradual improvements in debtors days ratio from 2008 to 2010 respective values are 14.57, 19.42, and 32.15 with reference to industry average values are low.

Creditor Days:

It’s almost like debtors days but quite opposite in functioning. The higher the value in ratio resembles good for the organisation. From the above analysis there was an huge growth from 20.40 days(2008) to 23.31 days(2009) to 37.80 days(2010).By this we can say that the company hold for a little longer period of there liquid assets.

Net Income Ratios:

The Net Income Ratio is net operating figure divided by percentage of total sales. There is a fluctuation in results as 2010(7.67) compared to the 2008 (10.00) and 2009 (8.73). from this we can say that the profitability margin is getting down.

Gross Income Ratios:

Gross income ratio shows the profits related to sales after the production costs are subtracted. This ratio is treated as an indicator of the efficiency of the production. I got ratios as 19.99(2008), 16.66(2009), 14.949(2010). Gross income ratios of the MG Fabrications over the 3 years are satisfactory.

ROE(Return On Equity):

By using this ratio we will find out, how effectively the resources provided by firm share holders are being utilised. Analyst calculates the ratio as a rough indication of long term return. From my analysis can conclude that there is a gradual decrease in values from 1.252(2008) to 0.696(2009) and again in 0.463(2010).This would be a very bad situation for the company as the business comes down from its capital employed.

Cost Of sales:

The increase in cost of sales is only to a minor extent from 0.80(2008) to 0.83(2009 ) and 0.85(2010). With this increase the consumer’s attraction for the products increases which interns leads to the hike in the company’s production.

Stock turnover days:

This is one of the another important ratio. In other terms called inventory turn over. Calculated as cost of goods sold divide by average inventory. There is drastic blow down in stock turnover from 2008(50.10) to 2010 (27.54).

Return on Net Assets:

This ratio is calculated as follows 🙁 net profit after tax/total assets)*100. From this ratio we can analyse efficiency in utilization of assets. The company performance has been degrade from the year 2008(0.50) to 2009(0.38) & then in 2010(0.26).