Written Assignment

Written Assignment
The company’s financial position is the current balance of the recorded assets, liabilities, and
equity of the organization recorded in a balance sheet. A balance sheet helps investors and
creditors analyse managements’ expertise in using the company's resources to work, while an
income statement shows whether a company is generating a profit or loss over a period of
time (Murphy, 2021).
Gross profit margin is the profit obtained by subtracting the cost of goods sold (COGS) from
product sales (Bloomenthal, 2021).
The formula is Profit Margin = gross profit / Sales
Year 2017: Profit Margin = Gross Profit / Revenue = 1,637,600 / 6,595,400 = 0.2483
In percentage = Profit Margin * 100 = 0.2483 * 100 = 24.83 %
Year 2018: Profit Margin = Gross Profit / Revenue = 2,696,900 / 9,200,000 = 0.2931
In percentage = Profit Margin * 100 = 0.2483 * 100 = 29.31 %
Current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within a period of one year” (Fernando, 2021).
Formula: Current Ratio = Total Current Assets / Total Current Liabilities (Finance for
Managers, 2012)
Year 2017: Current Ratio = 4,576,900 / 3,292,850 = 1.39
Year 2018: Current Ratio = 5,652,200/ 3,325,950 = 1.70
Debt ratio is the "proportion of a company’s assets that are financed by debt" (Hayes, 2021).
If the ratio is more than 1, that implies the companies have more liabilities than assets, and
when the ratio is less than 1 indicates that most of the firm's assets are funded by equity
(Hayes, 2021).
Formula: Debt Ratio = Total Liabilities / Total Assets (Finance for Managers, 2012)
Year 2017: Debt Ratio = 4,067,900 / 5,875,400 = 0.6924 = 69.24%
Year 2018: Debt Ratio = 4,170,300/ 7,007,800 = 0.5951 = 59.51%
Two Other Ratios;
Debt-Equity Ratio. It is similar to debt-ratio except it subtracts total liabilities from total
assets in the denominator (Finance for Managers, 2012).
Formula: Debt-Equity Ratio = Total Liabilities / (Total Assets – Total Liabilities)
Year 2017: Debt-Equity Ratio = 4,067,900 / (5,875,400 - 4,067,900) = 2.250
Year 2018: Debt Ratio = 4,170,300/ (7,007,800 - 4,170,300) = 1.4690
Return on Assets (ROA) measures the manager's overall effectiveness in creating profits with
the firms’ assets. The higher the ratio the better” (Finance for Managers, 2012).
Formula: ROA = Net Income / Total Assets
Year 2017: ROA = 454,500 / 5,875,400 = 0.0774 = 7.74%
Year 2018: ROA = 1,330,000 / 7,007,800 = 0.1898 = 18.98%
Conclusions based on ratios
1. The profit margin increased in 2018 from 2017, which means that the company is doing
well.
2. The current ratio for the year 2017 and 2018 is more than 1, although current ratio of 2018
is slightly more than 2017. This implies that, in 2018 the company has more short-term assets
to pay its obligations.

3. Having debt-ratio less than 1 indicates that the firm has more assets than liabilities, and
more in 2018 than 2017.
4. The higher the ROA, the better it is. 2018 clearly shows better financial picture than 2017.
Is there any viability for a new project?
The projects seem to be viable in future as the company performed better in 2018 than in
2017. However, the data of more years is required before making any decision.
Assets and Implications
An increase in assets shows that the firm is more stable and is more likely to pay its investor
on time in the future. It may also attract more investors and can have a positive implication on
the firm. An increase in the profit led to the increase in assets.
Follow-up Questions
1. With just 2 years it’s hard to make any decision, so an analysis to previous year financial
statements would help in strengthening the result.
2. What are the possible implications of the project the company is going to engage in? what
are the chances of success?
3. Is there any risk associated with the company if it outsources its service contracts to other
companies?
References
1. Bloomenthal, A. (2021, March 19). Why gross profit margin matters. Investopedia.
https://www.investopedia.com/terms/g/gross_profit_margin.aspFernando, J. (2021,
April 7).
2. Current ratio. Investopedia. https://www.investopedia.com/terms/c/currentratio.asp
3. Finance for Managers. (2012). Licensed under Creative Commons by-nc-sa 3.0.
Download the PDF version.?
4. Hayes, A. (2021, March 30). Debt ratio. Investopedia.
https://www.investopedia.com/terms/d/debtratio.asp
5. Murphy, C. B. (2021, April 24). How do the income statement and balance sheet
differ? Investopedia. https://www.investopedia.com/ask/answers/101314/what-
difference-between-income-statement-and-balance-sheet.asp

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time (Murphy, 2021).

product sales (Bloomenthal, 2021).

The formula is Profit Margin = gross profit / Sales

In percentage = Profit Margin * 100 = 0.2483 * 100 = 24.83 %

In percentage = Profit Margin * 100 = 0.2483 * 100 = 29.31 %

obligations or those due within a period of one year” (Fernando, 2021).

Year 2017: Current Ratio = 4,576,900 / 3,292,850 = 1.39

Year 2018: Current Ratio = 5,652,200/ 3,325,950 = 1.70

Year 2017: Debt Ratio = 4,067,900 / 5,875,400 = 0.6924 = 69.24%

Year 2018: Debt Ratio = 4,170,300/ 7,007,800 = 0.5951 = 59.51%

Two Other Ratios;

assets in the denominator (Finance for Managers, 2012).

Formula: Debt-Equity Ratio = Total Liabilities / (Total Assets – Total Liabilities)

Year 2017: Debt-Equity Ratio = 4,067,900 / (5,875,400 - 4,067,900) = 2.250

Year 2018: Debt Ratio = 4,170,300/ (7,007,800 - 4,170,300) = 1.4690

Formula: ROA = Net Income / Total Assets

Year 2017: ROA = 454,500 / 5,875,400 = 0.0774 = 7.74%

Year 2018: ROA = 1,330,000 / 7,007,800 = 0.1898 = 18.98%

Conclusions based on ratios

to pay its obligations.

more in 2018 than 2017.

Is there any viability for a new project?

Assets and Implications

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