Accounting Financial Analysis Report Analysis Liquidity Position

Question: Discuss About The Financial Report Analysis Liquidity Position? Answer: Introducation Current ratio The current ratio of Blackmores Limited is 1.53 for 2015 and 1.63 for 2016 which is more than the required rate of 1. It can be recognized from the above calculation that the liquidity position of the company for the year has been improved. The current ratio of any company is regarded as healthy if it is 1 or more than one. However, the ratio more than 2 indicates that the company is not utilising its working capital in efficient way (Morris and Shin 2016). Therefore, it can be said that the liquidity position of the company is good and they are in comfortable position to pay-off their current obligation comfortably. Acid test ratio It is calculated that the acid test ratio for Blackmores limited for the Year 2015 is 0.93 and that of 2016 is 1.30. The acid test ratio identifies whether the organization is capable of paying off its short-term obligations with the available short-term assets. Generally the acid test ratio of between the range of 0,20 to 0.50 is considered healthy (Noor and Lodhi 2015). It can be identified that the liquidity position of the company while the inventories are not considered is quite healthy. Though, the ratio of 2016 is quite better as compared to that of 2015, the acid test ratio of both the year is healthy. Financial advice to improve the overall liquidity position Reducing the overhead reducing the overhead of the company is one of the ways to improve the liquidity position (Zhu 2014). Operating expenses or overhead cost include various things that do not contribute to the profit. Some common overheads like insurance, utilities, rent, and professional fees can be reduced to improve the overall liquidity position. Analysis of capital structure ratio Proprietors ratio It can be seen that the proprietors ratio of Blackmores Limited is 42% for the year 2015 and 45% for the year 2016. The proprietors ratio of Blackmores Limited reveals that the shareholders contribution in the total capital of the organization. The low proprietary ratio like 40 - 50% is indicating that the company has strong position with regard to the finance and the creditors are highly secured. On the contrary, the higher ratio like more than 50% would have indicated that the company is highly dependent on the debts for its business operation (Zeitun and Tian 2014). Further, the bigger portion of debt in the capital decreases the interest of the creditors, increase the expenses towards interest and increase the risk related to bankruptcy. Generally, the ratio of 40% is considered as healthy for the organization. Therefore, it can be said that the proprietors ratio of the company is under control. Debt to total asset ratio Debt to total asset ratio of Blackmores Limited is 58% for the year 2015 and 55% for the year 2016. Normally, the ratio of 50 - 60% is indicating that the position of Blackmores is healthy for the organization to be viable in the long-run. It is the leverage ratio that calculates the amount of the total asset financed by the creditors rather than the investors. On other words, it is the ratio of asset that is financed through borrowing. Generally, it evaluates how the company is growing and acquiring the assets over the time (Robb and Robinson 2014). It can be seen that the Therefore, it can be said that the debt to total asset ratio of the company is as per requirement. Analysis of profitability position of the company Inventory turnover ratio the ratio of the company for 2015 as 0.95 and for 2016 0.69 is indicating that of the company is quite impressive as it is able sell 69% of its inventory within a year for 2016. From the above it is identified that the companys inventory turnover ratio is declined in 2016 as compared to that of 2015. However, the ratio of the company is quite impressive as it is able sell 69% of its inventory within a year for 2016. This ratio is the efficiency ratio and revels how effectively the company is managing its inventory through comparison of COGS with the average inventory for the specific period. This ratio is states the time which, the inventory is sold or turned into cash by Blackmores during the year. If the company purchases large amount of inventory it has to sale large amount of inventory to improve the inventory turnover ratio. However, if the company is not able to sell its inventories in timely manner, it will have to incur various costs like holding cos ts and storage costs. Return on invested capital However, from the table it is revealed that the OIC of the company is 23% in 2016 as compared to the 21% of 2015. Therefore, it can be said that the ROIC of the company has improved in 2016 as compared to 2015. This ratio is used for assessing the efficiency of the company with regard to the allocation of its capital for the profitable investment. ROIC reveals how the company is utilising its capital for generation of income (Ioannidis et al. 2014). However, whether the return is good or bad, it depends on the companys cost of capital. If the return is more than the cost of capital, it is regarded as good return and vice versa. Analysis of asset management efficiency position Receivable turnover ratio - From the above table it is identified that the receivable turnover ratio of the company has improved as compared to the year 2015 and for 2015 it was 4 times approximately and for 2016 it was 5 times approximately. It is measured to calculate the efficiency of a company with regard to extension of credit and collection of the dues. It is the activity ratio that states the efficiency of a company in utilization of its assets. a high ratio indicates that the company is making its sales mainly on cash and on the contrary a low ratio suggests that the company has poor collection procedures and an inefficient credit policy or the customers are going through bad financial condition (Tayeh, Al-Jarrah and Tarhini 2015). Fixed asset turnover ratio It can be identified from the above table that the ratio for the year 2016 is better as compared to 2015. A higher ratio indicates the better turnover position and higher level of efficiency. It is used by the financial analyst to measure the operating performance of the company and the ability of the company to create sales from the fixed asset like property, plant and equipment or investment (Robinson et al. 2015). Investment decision Looking at the performance of the company through various ratios for the year 2015 as well as 2016 it is concluded that the firm is a better one to invest in as the financial performance of the company is as per the industry standards and will definitely provide the investor with positive return. The reasons of investment are as follows Return on invested capital of the company is 21% and 23% respectively for 2015 and 2016. It indicates that the company will provide consistent return to the investors. The current ratio of the company is 1.63 and 1.53 respectively for the year 2015 and 2016. It indicates that the company is efficient and in better position to pay-off their short-term obligations efficiently and thereby expected that the investors will get their return on time. Reference Ioannidis, J.P., Greenland, S., Hlatky, M.A., Khoury, M.J., Macleod, M.R., Moher, D., Schulz, K.F. and Tibshirani, R., 2014. 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