2018060401301920180601223052financial_statement_analysis_fpfp x2018060401302220180601223057final_statement_analysis__part_two_fpfp.xlsx
Running Head: FINANCIAL STATEMENT ANALYSIS
1
FINANCIAL STATEMENT ANALYSIS 6
Financial Statement Analysis FPFP
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Introduction
The health of a firm is prudent for financial analysis. The financial statement prepared according to General Accepted Accounting Standards as well as International Financial Reporting Standards outlines how such statements need to be prepared. Consequently, the already prepared statement is relied on by various stakeholders, for example, the management for examining both financial performances as well as conditions of the business. Secondly, the creditors use the information in examining the creditworthiness of the said firm whether to continue with their credit facilities or not.
Additionally, the government is keen on the information for taxation purposes as well as subsidies and grants (Analysis, 2011). Again, the investors rely on the information to ascertain whether the business is going the right way or not. Furthermore, the suppliers are keen on the already mentioned in evaluating whether the firm is in a prime position meeting their obligations whenever they supply their goods and services to the given firm.
Again, the employers are keen on such information as they examine their job security as well as their future working conditions (Analysis, 2011). Finally, the customers, as well as other interested parties, are keen on such since they rely on the firm for different goods and services from the given firm.
Different financial ratios are used as indicators of the financial performance of the company to its various stakeholders hence a summary of the various financial statements prepared for different periods (Analysis, 2011). In so doing, the various parties analyse the firm’s performance.
The various ratios were critically examined for the three years running from 1st January 2015 to 31st December 2017. To start with, the return on equity was established, and the result was wanting. It was found that ROE was declining from the year 2015 to the year 2017. In fact, the year 2015 had 5.87% while the year 2017 had 0.96% hence clear indicating the earning resulted from assets invested has been on decline hence raising health issues for the company. The decreased ROE is critical for investors and their net worth and hence need to look what is happening as the company is deteriorating financially.
Additionally, total asset turnover was evaluated, and the highest was in the year 2015 is 2.64 times, in the year 2016, 2.46 times and the year 2017 had the least having 2.13 times. From the figures given above, it’s clear that the company is heading in the wrong direction. Generally, a higher asset turnover is prudent for going concern for any given firm. Considering the three years under study, it is evident the asset turnover has been on a declining trend.
A critical examination of financial leverage was performed, and the result was well welcoming. There was an increasing trend from the year 2015 to the year 2017. The year 2015 had the lowest financial leverage being 1.72 times, the year 2016 having 1.79 times while the year 2017 had the highest being 1.98 times. From the information given, it’s clear that the firm is in an excellent financial position in form of leverage.
The contribution margin of the firm was performed, and the year 2015 had the least amounting to $ 1,905,547, followed by the year 2017 with $ 2,238,723 while the year 2016 had the highest contribution margin amounting to $ 2,240,611. It’s therefore evident that the year 2016 was the nest performed among the three periods considered as it had the highest contribution margin.
The firm’s current ratio has been on a reducing trend. The year 2015 had the highest current ratio having 3.13 times implying a suitable means of meeting its short-term obligations. A firm with the higher current ratio is considered healthy in meeting urgent financial needs hence encouraged. Additionally, the current ratio decreased to 2.87 times in the year 2016 and consequently 2.20 times in the year 2017. On a rational approach, it seems healthy but raises questions about the solvency issues since there is a decreasing trend hence issues to be addressed.
A precise examination of debt to equity ratio was examined and revealed that the year 2017 had the highest ratio and the year 2016 had the lowest having 0.01 times. There exist advantages of debt capital reduces tax since it’s allowable. On the other hand, it poses challenges insolvency issues.
Considering the firm’s financial statements, a precise examination of the earning per share was examined and it was observed that, of the three years, 2016 had the highest EPS being $ 1,772.27 while the year 2017 had the lowest EPS being $ -330.55 hence need to look into the reasons resulting in the low EPS, in fact, a negative value. If this is the trend, there is a reason to worry about going concern issues.
The firm’s debt to capital for the company had mixed reaction the highest being in the year 2017 and the lowest being in the year 2016. The Capital structure needs to be controlled for operation and solvency issues.
After critical horizontal analysis of the income, it’s clear that the firm has a positive trend since the gross profit has increased significantly hence an upper hand (United States Securities and Exchange Commision. 2017). Considering the vertical analysis of the company’s income, there is reducing trend in the gross profit hence need for worry. There is a reduction in profit from 48.08% in the year 2015 to 44.99% in the year 2017. Considering the company’s balance sheet for the three years, there is increased total assets in terms of vertical analysis. Additionally, the total liabilities have increased with time hence an increasing trend from the year 2015 to the year 2017. Consequently, increased net asset increase from the year 2015 to the year 2017. Considering the horizontal analysis, there are increased asset net worth over the years basing the year 2015 as the base year.
Conclusion
From the discussion above, the management discussion and analysis, four items formed the prime factors resulting in the above discussed. There has been an increase in changes from traditional methods in terms of performance products to the latest performing products hence an improvement in the company’s products. Consequently increasing the market share hence improved net earnings for the year (United States Securities and Exchange Commision. 2017). Despite the increased revenue, there has increased competition hence posing a challenge in its income generating activities hence need for effective strategies hence having third parties in order to increase the revenue. It’s therefore prudent maximising the profits as well as the shareholders’ wealth. In so doing, various factors must be taken into consideration, for example, the society through corporate social responsibility, i.e. CSR. From the findings, it’s clear the company has mixed financial performance for the three years under study hence need to streamline its income generating activities for maximum productivity.
References
Analysis, F. R. (2011). Financial Reporting and Analysis. In C. H. Gibson, Financial Reporting and Analysis (pp. 156-179). Califonia: McGraw-Hill.
United States Securities and Exchange Commision. (2017, December 31). Retrieved May 27, 2018, from Management Discussion and Analysis: https://www.sec.gov/Archives/edgar/data/1336917/000133691718000009/ua-20171231x10k.htm
>Sheet 1/1 ,976,553
,3 4,724
,7 7
_ .58
_ 12/31/17 12/31/16 12/31/ 100% 100% ,470.00
7 5 Cash And Cash Equivalents _ – – – Short Term Investments – – – ,685.00
17 15 Net Receivables _ 25 Inventory _ ,978.00
5 5 Other Current Assets .62
_ .00
.00
54 52 Total Current Assets _ – – – Long Term Investments _ 22 Property Plant and Equipment _ 15 Goodwill _ 2 3 Intangible Assets _ – – – Accumulated Amortization _ _ _ 3 3 Other Assets _ 4 3 Deferred Long Term Asset Charges _ .00
.00
_ Total Assets Current Liabilities 17 14 Accounts Payable _ .00
.00
7 1 Short/Current Long Term Debt _ 1 2 Other Current Liabilities _ .00
.00
19 17 Total Current Liabilities _ 22 22 Long Term Debt _ 4 3 Other Liabilities _ – – – Deferred Long Term Liability Charges – – _ – – – Minority Interest – – _ – – Negative Goodwill – – _ .00
.00
Total Liabilities _ – – – Misc. Stocks Options Warrants – – – – – Redeemable Preferred Stock – – 0.03 0.03 Common Stock 145 30 35 38 Retained Earnings – – – Treasury Stock – – 22 23 22 Capital Surplus 5.92 Other Stockholder Equity 50 56 Total Stockholder Equity 58 3,963,313 turnover
net sales 4,976,553 4,825,335 3,963,313 2,337,679 1,965,153 1,498,763 2,018,642 2,030,900 1,668,222 4,976,553 4,825,335 3,963,313 2,057,766 2,240,611 2,337,679 1,965,153 1,498,763 1,060,375 685,816 478,810 3.13 0.03 -48,260 256,979 232,573 146 145 144 -Score
2017 2016 2015 total assets 4,006,367 3,644,331 2,865,970 1,184,441 1,259,414 1,076,533 total assets 4,006,367 3,644,331 2,865,970 0.35 2,018,642 2,030,900 1,668,222 1,987,725 1,613,431 1,197,748 1.26 total assets 4,006,367 3,644,331 2,865,9702
1
Income horizontal analysis
12/
3
7
12/31/16
12/31/1
5
Total Revenue
4
4,8
25
35
3,963,313
Cost of Revenue
2,737,8
30
2,
58
2,057,766
Gross Profit
2,2
38
23
2,240,611
1,905,
54
Total Revenue
3.13
21.75
_
Cost of Revenue
5.92
25.61
Gross Profit
–
0.08
17
Income vertical analysis
15
Revenue
%
100%
Cost of revenue %
55.01
53.57
51.92
Gross profit %
44.99
46.63
48.08
Sheet2
Vertical analysis
Horizontal Analysis
12/31/17 12/31/16 12/31/15 12/31/17 12/31/16 12/31/15
Cash And Cash Equivalents
312,483.00
7.80
2
50
129,8
52
24.76
9
2.88
Short Term Investments
Net Receivables
609,670.00
15.00
6
22
433,638
-2.09
43.60
Inventory
1,158,548.00
28.90
917,491.00
783,031
27
26.27
17.17
Other Current Assets
2
56
6.41
174,507.00
152,242
47.26
14
Total Current Assets
2,337,679
58.35
1,965,153
1,498,763
18.96
31.12
Long Term Investments
Property Plant and Equipment
885,774.00
22.10
804,211.00
538,531
19
Goodwill
555,674.00
13.87
563,591.00
585,181
20
-1.40
-3.69
Intangible Assets
46,995.00
1.17
64,310.00
75,686
-3.07
-15.03
Accumulated Amortization
Other Assets
97,444.00
2.43
110,204.00
75,652
37.49
Deferred Long Term Asset Charges
82,801.00
2.07
136,862.00
92,157
48.50
Total Assets
4,006,367
3,644,331
2,865,970
Current Liabilities
Accounts Payable
857,949.00
21.41
618,429.00
393,395
38.73
57.20
Short/Current
Long Term
Debt
152,000
3.79
27,000
42,000
462.96
-35.71
Other Current Liabilities
50,426.00
1.26
40,387.00
43,415
24.86
-6.97
Total Current Liabilities
1,060,375
26.47
685,816
478,810
54.62
43.23
Long Term Debt
765,046.00
19.10
790,388.00
624,070
-3.20
26.65
Other Liabilities
137,227.00
94,868
18.27
44.65
Deferred Long Term Liability Charges
Minority Interest
Negative Goodwill
Total Liabilities
1,987,725
1,613,431
1,197,748
23.2
34.71
Stockholders’
Equity
Misc. Stocks Options Warrants
Redeemable
Preferred Stock
Preferred Stock – – _ Preferred Stock – –
Common Stock
146
0.03
145
144
0.69
Retained Earnings
1,184,441
1,259,414
1,076,533
-5.95
16.99
Treasury Stock
Capital Surplus
872,266
823,484
636,558
29.37
Other Stockholder Equity
-38,211
-52,143
-45,013
26.72
-15.84
Total Stockholder Equity
2,018,642
2,030,900
1,668,222
-0.6
21.74
Net Tangible Assets
1,415,973
1,402,999
1,007,355
Sheet3
Ratios
2017
2016
2015
ROE
net income
-48,260
256,979
232,573
net
sales
4,976,553
4,825,335
%
0.96
5.33
5.87
Total assets
average
total assets
2.13
2.46
2.64
Financial Leverage
total assets 4,006,367 3,644,331 2,865,970
total equity
1.98
1.79
1.72
contribution margin
Sales
variable costs
2,737,830
2,584,724
2,238,723
1,905,547
current ratio
current assets
current liabilities
2.20
2.87
D/E ratio
Debt 152,000 27,000 42,000
Equity 2,018,642 2,030,900 1,668,222
0.08
0.01
EPS
Net income
no of ordinary shares
-330.55
1772.27
1615.09
Debt to
capital
Debt to 152,000 27,000 42,000
capital 1,415,973 1,402,999 1,007,355
0.11
0.02
0.04
Sheet4
Altman
Z
working capital
1277304
1279337
1019953
0.32
0.35
0.36
retained earning
0.30
0.38
EBIT
24,229
414,716
401,313
Total assets 4,006,367 3,644,331 2,865,970
0.01 0.11
0.14
Market equity value
total liabilities
1.02
1.39
sales 4,976,553 4,825,335 3,963,313
1.24
1.32
1.38
Z 2.88
3.39
3.65
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