Measuring Firm Performance Using Financial -Myassignmenthelp.Com

Question: Discuss About The Measuring Firm Performance Using Financial? Answer: Introduction Common size analysis or the vertical and horizontal analysis of the company is used to analyse each item of income statement and balance sheet to assess the trend of the company. Looking into the horizontal analysis of the company it is identified that the revenue of the company has been increased by 43% in 2017 as compared to 2016. However, the expenses of the company have been increased by 39% as compared to previous year. Further, as the increase of revenue is more than the increase of expenses, the net income of the company is increased by 56%. Moreover the assets of the company have been merely reduced by 0.42% over the years from 2016 to 2017. The total liabilities have been reduce by 4.11% and total shareholders equity of the company is increased by 4.97% On the other hand, looking into the vertical analysis of the company it is identified that the operating income of the company for the year 2017 is 18% of the revenue whereas for 2016 the same was 16% of the revenue. Further, the net income for 2017 is 13% as against 12% for 2016. Out of the total assets of the company 8.7% is current assets and 91.3% is non-current assets. Further, among the total liabilities and equity, 57% is debt component and 43% is equity component. Ratio analysis Profitability ratio looking into the profitability ratio of the company it is identified that the gross profit ratio and return on equity of the company is reduced in 2017 as compared to 2016. The gross profit has been reduced from 94% to 34% over the years and the return on equity has been reduced from 8% to 4%. However, the operating margin has been increased from 165 to 18%. Therefore, it can be stated that the profit earning efficiency of the company has been reduced over the years (Delen, Kuzey Uyar, 2013). Efficiency ratio it measures the operational efficiency of the company. These ratios are also known as turnover ratio. Looking into the receivable turnover ratios of the company it is recognized that all the three ratios that is the debt to equity ratio, long-term debt to equity and debt to total assets ratio of the company over the last 2 years has not been changed significantly. Therefore, the efficiency of the company has not been improved or deteriorated. Solvency ratio the main objective of these ratios are assessing the companys ability to pay off their long term obligations. Further these ratios reveal the long term operating and financial structure of the company. Looking into the solvency ratios of the company it is found that debt to equity ratio of the company has been increased which states that the debt portion is increased. However, the other ratios are depicting that the company has a balanced capital structure and moderately leveraged. Liquidity ratio these ratios states the ability of the company to pay off their obligations when they are due. Looking into the current ratio of the company it is identified that the companys efficiency to meet the obligations over the past 2 years has not been changed. However, the defensive interval has been reduced from 173.98 to 139.73. Therefore, the ability of the company to operate under the situation where cash inflow are cut off is reduced (Lundholm Sloan, 2013). Recommendation From the aspect of potential creditor the creditor will be mainly concerned about the liquidity position and solvency position of the company to assess the companys ability to meet its financial obligation. It can be identified from the above that the company has maintained the balance among its debt and equity component under the capital structure. Further, over the last 2 years the company has maintained the moderate liquidity position. Therefore, based on the analysis it will be safe for a creditor to lend money to Corus Entertainment Limited. From the aspect of potential share investor the shareholders before investing in any company mainly analyse the efficiency status and profitability position of the company. It is recognized that though the profitability position of the company has been deteriorated over the years from 2017 to 2016, the company was able to maintain its efficiency over the last 2 years. Further, the company was able to earn profit over the last 2 years. Further, it was able to reduce the liability by 2% as compared to the previous year. Therefore, the shareholder can invest their money into the company. Reference Delen, D., Kuzey, C. Uyar, A, (2013). Measuring firm performance using financial ratios: A decision tree approach.Expert Systems with Applications,40(10), pp.3970-3983. Lundholm, R.J. Sloan, R.G, (2013).Equity valuation and analysis with eVal. McGraw-Hill Irwin.