Introduction
This paper seeks to answer question relating to the financial performance and financial position of Glory Ltd.
Questions and Answers
Discuss and comment on the changes for the years 2006 and 2005 based on the common-size balance sheet and profit and loss statements.
The changes for the years 2006 and 2005 based on the common-size balance sheet and profit and loss statement indicate that profitability has been declining from 2004 through 2006 as shown by the Gross Profit margin of 24.43%, 32.76% and33.09% for the years 2006, 2005 and 2004 respectively. This was also confirmed be the declining trend in net profit (loss) margins for the same periods under review which were reflected at 8.99%, 11.74% 17.07%, for the years 2006, 2005 and 2004 respectively.
Comment on Glory Ltd’s liquidity, efficiency, leverage, profitability and return on investment ratios for the years 2006 and 2005 and their interrelationship by identifying the influence of each ratio and its implications for each relevant area of Investigation.
Glory’ Ltd’s liquidity may be observed to above average the Current ratio 2.84 2.57 for the years 2006 and 2005 respectively. The said ratio means that the company has more than enough current assets to cover it currently maturing obligations. This is supported by that fact of Quick ratios of 2.44 and 2.19 for the years 2006 and 2005 respectively.
As to the company’ efficiency the following rates were reflected in terms of inventory turnover of 6.58 and 5.64 for the years 2006 and 2005 respectively while average collection period was 5.85 and 11.12 respectively. It means that company operation is very efficient at it being able to sell is t product with an average of about six times or more for the year. Given the fact the company is principally engaged in the manufacture and retailing of a wide variety of textile and garment products mainly sold to Hong Kong, China and South East Asia countries under its own brand name and branches, said inventory turnover is rally very high (Case facts). More over the average collection period was lower than its normal number of days for its accounts payable to suppliers which ranged from 19% to 20%.
As to leverage, the company is also doing well on the basis of the debt to equity ratio of 0.73, 0.69 for the years 2006 and 2005 respectively.
The company’s profitability on the other hand is still very high despite the declining trend. This may be proved by net profits margins of 8.99% and 11.74%_ for the years 2006 and 2005 respectively.
The company’s return on investment ratios1 for the years 2006 and 2005 in terms of return on assets may are reflected at 6.72% and 8.77% respectively indicate a strong relationship with financial leverage of the company as well as its liquidity. The positive profitability if they company is the very cause of its liquidity and long term solvency or financial leverage.
Give your conclusion of the financial position and operating performance of Glory Ltd
It may be concluded that the financial position and operating performance of Glory Ltd. is acceptable and prospective stockholders may be given the chance accordingly to buy the companies stocks if the purpose is to earn from the company’ stocks as a form of investment.
The financial position of Glory Ltd. is basically strong given the very low debt to equity ratio and as to what causes it, it was argued and proven that the continued profitability has done its is works in addition to the very liquid situation of the company as measured in terms of current ratio and quick asset ratio.
Work Cited
Meigs and Meigs (1995) Financial accounting, Mc-Graw Hill , London, UK