Understanding and interpreting financial data Coursework

Understanding and interpreting fiscal data - Coursework ExampleThe vast competition and globalization that businesses face today means necessary steps to ensure continuous growth must be put in place. One method of doing this is the analysis of financial proportions. In this case, Bravo Ltd stop obtain financial ratios using their latest financial statements and comparing the results with a competing business within the same industry. Alternatively, a business with the best business consecrate and a good track record is chosen as a benchmark for Bravo Ltds improvement.It is a tool for interpreting the financial statements to assess financial and management performance. There are several types of financial ratios available that go out benefit Bravo Ltd Liquidity Ratios, Asset Management Ratios, profitableness Ratios and Gearing Ratios. apiece ratio is measured differently and used according to the necessary analysis needed.This measures the ability of Bravo Ltd to meet its short -term financial liabilities as they fall due. It is of incident interest if Bravo Ltd wishes to extend its short-term credit facilities. There are two kinds of Liquidity Ratio - Current Ratio and Quick Ratio.Stocks are excluded in the calculation because stocks may include items that have uncertain liquidation values. Ideally, a ratio of 2 is considered safe for the former while a ratio downstairs 1 is recommended for the latter.This measures how well Bravo Ltd utilizes its assets for the benefit of its business. Having a sound ratio will ensure that Bravo Ltd is better received by would-be investors. We will look at Inventory dollar volume, Receivables Turnover, Average Collection Period and Fixed Asset Turnover.Inventory Turnover = Cost of Goods Sold / InventoryReceivables Turnover = assurance Sales / Accounts ReceivablesAverage Collection Period = 365 / Receivables TurnoverFixed Asset Turnover= Sales / Fixed AssetsGenerally, a high turnover ratio is preferred.2.3 Profitabilit y RatioThere are several ratios available that can measure the ability of Bravo Ltd to generate profits from its sales. These include Gross Profit Margin, croak on Assets and Return on rectitude.Gross Profit Margin = (Sales - Cost of Goods Sold) / SalesReturn on Assets = Net Income / Total AssetsReturn on Equity = Net Income / Shareholders EquityA good profit margin is essential in any form of business to ensure there is always profuse currency to run its operations. Thus, it is also important that receivables are collected on a timely basis.2.4 Gearing RatioThis assesses the financial risk of Bravo Ltd. A high gearing ratio poses risks if Bravo Ltd is unable to meet its financial obligations as this can very well lead to bankruptcy. Therefore, it is important that this is constantly monitored. The ratio is used is Debt to Equity Ratio.3 FINDINGSRATIO2007 (000)2008 (000)WorkingResultWorkingResultCurrent Ratio1770 / 5603.162490 / 8402.96Quick Ratio1770 - 930 / 5601.502490 - 1250 / 8401.48Inventory Turnover3020 / 17701.714550 / 24901.83Receivables Turnover4940 / 8206.026850 / 12305.57Average Collection Period365 / 6.0260 Days365 / 5.5766 DaysFixed Asset Turnover4940 / 26001.906850 / 32102.13Gross Profit Margin1920 / 494039%2300 / 685034%Return on Assets460 / 437011%450 / 57008%Return on Equity460 / 381012%450 / 48609%Debt to Equity560 / 381015%840 / 486017%Our findings show that Bravo Ltd has a good Liquidity Ratio. Its Current Ratio is 2.96 (3.16 in 2007) and its Quick Ratio is 1.48 (1.50 in 2007). This means Bravo Ltd is more than able to generate enough cash to settle its short-term liabilities. There has only been a slight change in its Liquidity Ratio over two years. As a guide, a current