DMP

BA 401
ACCOUNTING AND DECISION MAKING
LECTURER: IAN BECK
SUBMITTED BY: -
NAME STUDENT ID
DHAIVAT KOTHARI UB 2650998
MEET HEMANT SHAH UB 2655064
PARTHIV PATEL. UB 2651001
1
PART A
The business report focuses on the comments in the profitability, liquidity and financial
stability of Joes Ceramics and Tiling the report also shows the in depth analysis on the
ratio and its appropriate calculation.
Beginning with the comments on the profitability of Joes Ceramics and Tiling [year
2004 & 2005.]
The operating profit including extraordinary items after tax for the year ended 30th June
was 56,000 in the year of 2005, an increase of 11% more than previous year.. The gross
profit margin of Joes Ceramics and Tiling has declined from 40 % in 2004 to 35 % in
2005 indicating that selling price have decreased and/or costs have increased and/or the
sales mix consists of a higher proportion of less profitable items. The net profit margin
has remained constant which indicates that no growth by the company. The total expense
has decreased by 2 % compare to the previous year. Further analyzing on the individual
expenses the selling and administrative expenses have decreased by 1% and 4%
respectively, whereas the interest expenses have increased by 3% in year 2005. The ratios
are mention in figure 1 [page 5 and 6]
SHAREHOLDERS RETURN
The return on equity increased from 2004 to 2005. In 2004, Joes Ceramics and Tiling
were generating an investment of one dollar of share holder’s equity returned 22.50 of
earning to available for the distribution to shareholders. In 2005, it has increase to 28.00.
The company profit generating ability has increased in 2005, with one dollar of
investment in assets generating 13.48 as compare to company previous years 9.92. The
ratios are calculated in figure 1 [page 5 and 6]
SOLVENCY
Joes Ceramics and Tiling Company had 39 cents of current asset for every $ 1 of current
liabilities in 2004. This has increased to 76 cents of current asset for every $1 of current
liabilities. Given the nature of their operation, the quick asset ratio is expected to be
significantly lower than the current ratio, particularly given that their inventory includes
properties held for the purpose of resale. The quick ratio is 25 cents in 2004 and has
increased in 2005 by 45 cents. Joes Ceramics and tiling co. has $0.01 of operating cash
flows for every $1 of current liabilities [deducting Bank overdraft] 2004. This has
increased to $0.03 in 2005, suggesting that the company has improved the capacity to
cover its current rent obligation from operating activities cash flows. The ratios are
calculated in figure 2 [page 7]
2
FINANCIAL STABILITY:
Joes Ceramics and Tiling funded $ 1 of asset with 83 [75] cents of debt in 2005 [2004].
The asset turn over ratio has increased from 66.17% in 2004 to 89.89 in 2005.and the
equity ratio have deteriorate significantly from 22.05% in 2004 to 17.41% in 2005.The
ratios are calculated in figure 3 [page8]
CONCLUSION:
Considering to all ratios like profitable, liquidity and financial stability of Joes Ceramics
and Tiling Co. by the overall picture we recommend that the company is growing
gradually so the interested investors wait until the debtors and creditors are resolved
before investing, therefore it is anticipated that in long term the investment will be
financially sound, provided they can select their time to disposed of the investment when
share rise favorable.
COMMENTS ON LIMITATIONS OF RATIO ANALYSIS.
There are number of limitations to ratio analysis. Some relate to the nature of the financial report
and the data disclosed [or not disclosed], while others are inherent in the nature of the financial ratio
themselves.
• Limitations of the analytical process need to be considered when interpreting and

relying on the ratios to form an opinion as to an entity’s financial health, both past
and present.
• Limitations relate to the nature of the financial statements and the data disclosed [or
not disclosed], while others are inherent in the nature of the financial ratios
themselves.
• Ratio analysis is only one financial analysis tool. Comprehensive and effective
financial analysis considers information beyond reported financial numbers..
3
PART B
By judging the overall picture we have interpret and analysis for Harvey Company are
• There was a large investment in property plant and equipment .this was funded by
an increase in borrowings of $200 000 and a share issue of $ 50 000
• The increase in borrowings means that in the future there will be an increase in
interest payable. This, together with an increase in equity, will put pressure on the
cash operations to fund larger future interest and dividend payment. A watchful
eye over working capital will be needed. Hopefully, the planned expansions will
result in increased sales and profit ad therefore an increase in cash from
operations.

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BA 401

ACCOUNTING AND DECISION MAKING

LECTURER: IAN BECK

DHAIVAT KOTHARI UB 2650998

MEET HEMANT SHAH UB 2655064

PARTHIV PATEL. UB 2651001

COMMENTS ON LIMITATIONS OF RATIO ANALYSIS.

• Limitations of the analytical process need to be considered when interpreting and

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