Ratio Analysis Memo

RatioAnalysis Memo

&nbsp&nbsp Author

August16, 2014.

NetProfit

2007

NetProfit=NetProfit

NetSales

=$769,000.80

$3,893,027.78

=19.7%

NetProfit-2006

=$293475.56×100

$1903504

=15%

NetProfit-2005

=$-380.65x 100

$439142.54

=0.09%

CurrentRatios

CurrentAssets

Currentliabilities

2007

=$1308685.20

$366786.29

=3.7

2006

=$313556.46

$180,107.60

=1.74

2005

=$69690.56

$5681.53

=12.26

Returnon Capital employed (ROCE)

NetIncome

Capitalemployed

2007

$769,000.80

$1132095.71

=67.9%

2006

$363094.91

$293474.56

=123.7%

2005

-$380.65

$69619.35

=-0.55%

AcidTest Ratio

CurrentAssets-(Inventories +prepayments) or Cash+ Accounts Receivable ÷ Current liabilities

Currentliabilities

2005 ($69690.56-$20593.43) ÷$5681.53= 8.64

2006 ($313556.46-$$82373.72) ÷ $180107.60= 1.28

2007($1308685.20-$205934.34) ÷ $ 366786.29=3.01

Assetsturnover

Netsales

TotalAssets

2007

$3,893,027.78

$1498882.00

=2.6

2006

$1903504÷$543202.51= 3.5

2005

$439142.54÷$110262.04=3.98

Returnon Assets- ROA

ROA= NETINCOME

ASSETS

2007

$769000.80÷$1498882=0.51

2006

$293475.56÷$ 543202.51 =0.54

2005

-$380.65÷$110262.4= -0.003

Returnon Shareholders’ Equity –ROE

ROE= NetIncome

ShareHolders Equity

2007

$769000.80÷$1132095.71=0.68

2006

$293475.56÷$363094.91=0.80

2005

($380.65)÷$69 619.35=0.005

Debtassets ratio

Totalliabilities

Totalassets

2007

$366786.29÷$1498882.00=0.24

2006

$180107.60÷$543202.51=0.332

2005

$40642.69÷$110262.04=0.37

Timeinterests Earned Ratio

Itis also called coverage ratio and measures the amount of interestthat could be used to cover future interest expenses.

Timeinterests Earned Ratio= incomebefore interest and Taxes or EBIT

Interestexpenses

2006

$1903504÷$3496.12=544

2005

$439,142÷$2796.89=157

Solvencyratio

Solvencyratio = (After Tax Net Profit + Depreciation) / Total liabilities

2007

($769000.80+$94925.75)÷$366786.29=2.36 x100= 236%

2006

($293475.56+$81056.63)÷$180107.60=207.94%

2005

(($380.65)+ $13523.83) ÷$40642.69=32%

TO:The Chief Executive Officer (Berry Bug Blasters)

FROM:Annexion Financial Consultants Ltd.

TOPIC:Financial Ratio Analysis

Thenet profit ratios for the company from year 2005 to year 2007indicates the progressive level of business profitability afterdeducting costs during the three years net profit rose from 0.09% in2005, 15% in 2006 and 19.7% in 2007.Current ratios show that the firm is in a stable position to pay itsdebts as indicated by the calculated ratios from 2005-2007 theratios are larger than normal ratio of one (12.96 in 2005, 1.74 in2006 and 3.7 in 2007. It indicates the firm is ability to service itsshort-term debts. In the same, returnson capital or equity employed in the business after tax deductionsshow that the firm has a high potential to make income from theinvested capital.

Quickratios indicate that the business has a higher capacity to use itsavailable cash to meet its current liabilities at book value.Return on assets ratio also indicates themeasure of financial worthiness of the business efficiency using itsassets to generate sales income for the businessreturns on assets ratios are high. The return on equity ratios are also high in the three years andgives a measure of returns on invested equity by the shareholders.Debts ratios are lower than one in the three yearsa debt ratio higher than one indicates that the firm is in riskyposition to manage its debts possibly due to cash flow decline.

Timesinterest ratio is higher than one and indicates the number of times acompany can pay interest with income before tax deductions. A largerratio indicates a stronger company one that makes more income tocover its interest expenses in a year. Solvency ratios measure theability of a company to cover its long term debts it indicates thecompany size after deduction of tax in its income. The solvencyratios are higher than 20% and are considered good low ratioindicates the possibility of an organization defaulting its debtsobligations.

Thefinancial ratio information is important for creditors, suppliers,investors and the shareholders of the business. In particular, theratios indicate the viability and stability of the business. This isimportant for creditors, suppliers, investors and the shareholders,the ratios affirm that the business is strong financially. The ratiosindicate that the firm is in a stable financial position to serviceits short-term and long-term debts. In addition, the ratios indicatethat the business is profitable and sustainable.