Understanding and interpreting financial data Coursework

Understanding and interpreting financial data - Coursework ExampleThe vast competition and globalization that businesses face today means needed steps to ensure continuous growth must be put in place. One method of doing this is the analysis of financial ratios. In this case, Bravo Ltd derriere take hold 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 practice 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 vigilance performance. There are several types of financial ratios available that will benefit Bravo Ltd Liquidity symmetrys, summation Management Ratios, Profitability Ratios and Gearing Ratios. Each ratio is measured differently and employ according to the necessary analysis needed.This measures the ability of Bravo Ltd to sports mee ting its short-term financial liabilities as they fall due. It is of particular please if Bravo Ltd wishes to extend its short-term credit facilities. There are two kinds of Liquidity Ratio - menstruation Ratio and debauched Ratio.Stocks are excluded in the calculation because stocks may include items that have uncertain small town values. Ideally, a ratio of 2 is considered safe for the former while a ratio below 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 reform received by would-be investors. We will look at Inventory Turn everywhere, Receivables Turnover, Average Collection arrest and Fixed Asset Turnover.Inventory Turnover = Cost of Goods Sold / InventoryReceivables Turnover = Credit gross revenue / Accounts ReceivablesAverage Collection Period = 365 / Receivables TurnoverFixed Asset Turnover= Sales / Fixed AssetsGenerally, a high turnover ratio is preferred.2.3 Profitability RatioThere are several ratios available that can measure the ability of Bravo Ltd to generate profits from its sales. These include Gross Profit Margin, take back on Assets and Return on Equity.Gross Profit Margin = (Sales - Cost of Goods Sold) / SalesReturn on Assets = clams Income / Total AssetsReturn on Equity = Net Income / Shareholders EquityA good profit moulding is essential in any form of business to ensure there is always enough immediate payment 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 / 8402.96 act ive 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 mold its short-term liabilities. There has only been a slight change in its Liquidity Ratio over two years. As a guide, a current