Aacounting Example

Essays on Aacounting Assignment Accounting Working capital Working capital= current assets- current liabilities 2005 2006 Current assets 623981 672529 Current liabilities (509770) (418383) Working capital 114211 254146 Current ratio Current ratio= current assets / current liabilities 2005 2006 Current assets 623981 672529 Current liabilities 509770 418383 Current assets/ current liabilities 623981/509770 672529/418383 Current ratio 1.224 1.6074 Acid test ratio Acid test= Current assets- inventory/ current liabilities 2005 2006 Current assets less inventory 623981-203727=420254 672529-174848= 497681 current liabilities 509770 418383 Current assets- inventory/ current liabilities 420254/509770 497681/418383 Acid test ratio 0.8244 1.1895 Return on equity ROE= Net income/ shareholders equity 2005 2006 Net income 203828 136351 Shareholders’ equity 1404143 1365676 Net income/ shareholders equity 136351/1404143 203828/1365676 ROE 9.7% 14.93% Return on investment ROI= (gain from investment-cost of investment)/ cost of investment 2005 2006 Gain from investment 9623 20736 Cost of investment 99964 99964 (gain –cost)/cost 9623/99964 20736/99964 ROI 0.096 0.2074 Margin Gross profit margin= gross profit/ revenue 2005 2006 Gross profit 1649105 1959642 Revenue 5607376 4701289 Gross profit/ revenue 1649105/5607376 1959642/4701289 margin 0.2941 0.0416 Turnover Asset turnover= revenue/ assets 2005 2006 Revenue 5607376 4701289 Assets 1889296 2042996 Revenue/ assets 5607376/1889296 4701289/2042996 Turnover 2.97 2.30 Analysis Working capital The working capital of a company is equivalent to the current assets less the current liabilities of a company. The ratio issued to show the short term worth of a business. The preferable working capital should be positive so as to ensure that the assets are greater than the liabilities. From the analysis of the working capital, one can make a conclusion that the company is doing well because the working capital position of the company has improved from the 2005 to 2006. Current ratio The current ratio is a measure that is used to show the ability of a company to clear its short term debts by the use of current assets. The preferred current ratio is usually 2:1 or 1.5: 1 depending on the industry that the company is found. The company is improving in performance and that shows that the company will be able to cater for its short term obligations. However, in comparison with the industry’s average, the company is performing the average. That means that the company has potential that it can exploit so as to be in the same level as the industry players and that would contribute to the success of the company because more investors would be attracted. Acid test ratio The acid test ratio is used to show the ability of a company to clear its short term debts with the use of current assets but excluding inventory. Inventory may at times not be liquid and that means that it cannot be f much help in a short duration of necessity. The ratios also signify the ability of the company to cater for its short term obligation using current assts. The acid test ratio for the company is also not within the industry’s average. However, the company has made significant progress and that implies that if the trend continues, the company will be able to match the industry’s average. Return on equity The return on equity is the rate at which the company is able to utilize the shareholders funds. The rate should be favorable so as to ensure that the company shareholders get a reason to always do business with the company. It shows the amount of net income that is usually returned as a percentage of the equity contributed by shareholders. The ratio is useful in the measurements of the profitability of a company because it reveals the amount of profit that is generated by a company from the money invested by the shareholders. The return on equity for the company is way below the industry’s average. Although the performance of the company is improving, much more has to be done so as to attain confidence from investors. Return on investment The ratio is used as a measure for performance and it is usually useful in the measurement of efficiency for any investment. It is also useful in the comparison of efficiency for investments in the calculation of ROI. Benefit that is gained from investing is usually divided by costs that were incurred in investing. The return on investment for the year 2005 is below the industry’s average. However, in the year 2006, the company was able to outdo the industry’s average and that is an indicator that it was able to maximize on its strong points. Margin It’s a financial metric that is useful in the assessment of the financial health of a company in proportion to the money that has been used from revenue of the company. The margin for the year 2005 was favorable; however, in the year 2006, the efficiency of the company may have reduced because the margin ratio also declined. Turnover The ratio shows the sales of the company that are generated from the money that is invested in assets. The turnover for the company is not badly off although more should be done so as to ensure that all things are carried out as they should. From the analysis, whole foods company is a good company to invest in especially if the investor has long term goal orientation because the company ahs the probability of improving on its financials in the future (Furlan, 89). Work cited Furlan, M. Market research. New York; Mac Graw, 1999. Print.