Financial Accounting Case Study: Raysay Health Care Ltd
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Financial Ratios:
Various financial ratios could be established to create more meaning to the accounting and financial data of a company. Nonetheless, though the application of the financial ratios may be useful, it could also result into information overload. For instance, it has been indicated that a detailed list could ran as many as 44 various financial ratios (Reilly 1989).
Financial ratios can be grouped into 6 different groups focusing on the primary areas that should be analyzed. In this report, we shall only focus on the analysis of the financial ratios will be based on the perspective of the firm investors and they are discussed as follows.
Return on assets (ROA).
It is mostly applied to measure the performance of an organization. N/B the calculations of the ratios are in ($000).
ROA= Net profit/Total assets.
For Ramsay:= 10,714/365,085=0.0293 or 2.93%.
For SONIC= 78,873/313,874=0.0251 or 2.51%
Net profit is income after taxes and interest but prior to dividends. An organization that has more debt pays higher interest (Reilly 1989).
Return on Equity: it calculates the return on the funds of the investors; equity is the sum investment of all firm owners.
ROE= Net profit/Total equity.
For Ramsay= 10,714/172,130+27,385=5.3%
For Sonic= 78,873/167, 287 + 18,892= 4.24%
Return of equity could also be adjusted to show the average sum of equity deployed during the financial year and provides a more detailed picture of how the company faired during the year. The use of ROE simply on the end year numbers could lead to distortion if the sum of equity has in the recent passed been decreased or increased.
Gross profit margin (GPM):
GPM= Gross profit/sales:
For Ramsay= 34,849/381,389 = 9.1%
For Sonic= 27,819/289,783= 9.4%
When a company has a low GPM could result from bad product mix, low prices or the cost of materials are high, or could be a combination of these elements.
The financial Trend Analysis:
The results of trend analysis offers a more credible comparison since, though the data applied in the ratio might have been compiled under a special fiscal accounting alternatives, the internal regularity among each of the trends would allow for positive trend comparisons (Foster 2005).
RAYSAY HEALTH CARE LTD (LIQUIDITY AND PROFITABILITY DATA, 2010-2008):
2010 2009 2008
Margin (net profit/net revenues) 7% 5.6% 7%
Turnover (net revenues/average sum assets 0.63times 0.45 times 0.56 times
ROE (net profit/average equity of shareholder) 7% 4.5% 6.9%
ROA(EBT/average sum assets) 9.1% 6.5% 7.9%
Current assets $22 113 $66 407 54 070
Current liabilities 16 464 18 158 15 022
Working capital $5 649 48 249 39 048
Current ratio 1.34.1 times 3.66.1 times 3.6.1 times
SONIC HEALTH (PROFITABILITY AND LIQUIDITY DATA, 2010-2008):
2010 2009 2008
Net sales 653, 486 326,287 207 638
EBIT (299,207) 11, 529 8,865
Net profit (291,190) 72,298 59,728
Total assets 1,435,562 526,927 782,928
Noncurrent liabilities 252,928 211,319 14,792
Owners equity 944,826 363,018 28,292
The minimal decrease in the Return on equity is fundamentally due to increase in common stock. The impact of the increased in the sum of the shareholders; equity offsets the impact of the increase in income. Generally, a higher ROI indicate greater performance. For sonic the data shows that the firm is performing below the average and as a result, points a need to emphasize of assessments that would result into better performance.
References:
Foster, G. (2005) Financial statement analysis, Prentice-Hall, Englewood Cliffs, New Jersey.
Reilly, K. (1989). Investment Analysis and Portfolio management, second ed. The Dryden Press:
