8-1 Final project

ACC 307 Final Project Part II: Ratio Analysis Report

Alexis Waterman

Southern New Hampshire University

Ratio Analysis Report

Financial analysis is suitable for planning and ensures that decisions are based on the organization’s performance. The section will look into some of the significant financial ratios, including the quick ratio, gross margin, net margin, and return on Equity. The analysis indicates that the organization has been reducing its profit levels, which poses a significant risk. This calls for proper analysis of the organization’s performance.

This section outlines the financial analysis of the organization. It includes the quick ratio, gross margin, net margin, and return on Equity. The financial years range from 2015 to 2017, which also consists of an industrial standard of each financial ratio. The quick ratio indicates the ability of the organization to meet its short-term obligations with its liquid assets (Wijaya & Sedana, 2020). Organizations prefer to have a higher quick ratio that enables them to be more efficient in their operations. Gross margin is a financial indicator of organizational performance as it looks into the proportion of the gross profit to the net sales.

Organizations prefer to have reduced costs of goods sold to have high gross margin levels. The net margin is close to the gross margin; other than that, it looks into the proportion of the net income to the sales level (Nariswari & Nugraha, 2020). The net income margin will be high if the organization makes more net profit than the sales level. Return on Equity is a financial metric that looks into the percentage of net profit to the shareholder’s Equity (Hidajat, 2018). An organization will be more efficient if it has a higher return on Equity.

Comparison Ratios:

	2017	2016	2015	Industry Standard
Quick Ratio	1.66	2.2	2.8	1.75
Gross Margin	0.59	0.55	0.7	0.7
Net Margin	0.23	0.22	0.32	0.24
Return on Equity	0.89	0.9	0.78	0.8

Based on the table above, the quick ratio has decreased over the years. This indicates that the financial liquidity of the organization is at a greater risk. As of 2017, the temporary ratio levels reduced to beneath the industrial standard. This calls for a proper assessment of the organization’s performance. The gross profit margin levels are below the industrial standards and decrease the group. This is an indicator of reduced profit levels, which increased costs of goods sold can bring about the net margin (Wahlen, Jones & Pagach, 2017). The levels reduced drastically from 2015 to 2016. They also declined from 2016 to 2017. This calls for an assessment of the organization’s expenses which may be carrying down the organization.

The net profit as of 2015 was doing better than the industry standard, but it has reduced, which poses a significant risk to the organization. The return on equity levels has improved across the years. The ROE levels improved drastically from 2015 to 2016. They are trying to stagnate from 2016 to 2017. This indicates that the organization has reduced its leverage levels as the ROE levels are above the industrial standard (Wahlen, Jones & Pagach, 2017).

The financial aspect of the organization requires proper scrutiny as the organization is increasing its risk levels which affect the organization in several ways. Organizations need to ensure that the quick ratio levels are way higher than the industrial standards as they will have a competitive advantage (Wahlen, Jones & Pagach, 2017). As the risk levels increase across the years, the organization will be unable to advance its operations or meet financial needs when a financial emergency pops up.

References

Wahlen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate accounting: Reporting and analysis (2nd ed.). Boston, MA: Cengage Learning.

Wijaya, D. P., & Sedana, I. B. P. (2020). Effects of quick ratio, return on assets and exchange rates on stock returns. Am. J. Humanities Soc. Sci. Res, 4, 323-329.

Nariswari, T. N., & Nugraha, N. M. (2020). Profit growth: impact of net profit margin, gross profit margin and total assets turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), 87-96.

Hidajat, N. C. (2018). Pengaruh return on equity, earnings per share, economic value added, dan market value added terhadap return saham perusahaan sektor pertanian yang terdaftar di bursa efek indonesia periode 2010-2016. Jurnal Ekonomi, 23(1), 62-75.