ACC201 financial accounting SLP: Nybrostrand Company financialanalysis
Date of submission:
Nybrostrand Company financial analysis
The analysis in this paper is that of the financial statements ofNybrostrand company. The calculations and analysis presented arefigures for the financial year that ended on the 31st ofDecembers, 2014. For the analytical purposes of the paper, and toexplain the figures comparatively, the author has applied common sizeanalysis and ratio analysis. The common size analysis is a financialstatement that displays all the items in as a percentage of a commonfigure, while the ratio analysis is a quantitative analysis thatshows the financial information of a company’s share price. Bothare used for measuring the performance health and industrybenchmarking.
Figure 1: Nybrostrand company common sizeanalysis
From the figures above, Nybrostrand made a 19% net profit in the year2014. At the same time, the company realized a gross profit of 46%.During the same fiscal year, the operating expenses stood at 27%.From this analysis, the company is performing well.
Balance sheet for the year that ended 31 December 2014.
The table below shows the calculations for the balance sheet of thecompany for the financial year that closed on 31stDecember 2014.
Figure 2: Nybrostand balance sheet for theyear that ended 31 December 2014.
From the above calculations, Nybrostrand has approximately 18% ofcurrent assets. On the other hand, the non-current assets arerepresented by the rest of 82% from the balance sheet. The financiersof the assets were debt and equity. While the former financed about43%, the latter financed the rest of the 57%. The long-term debtcovered 26%, while the short-term debt covered 16%. This is astraight indication that the company is financing less from the shortterm, which, upon investigation, is revealed that the figure stands2% lesser than that of the current assets.
Accountants calculate ratio analysis based on line items in thebalance sheets (Benedicto, 2008). The results are used to inform thecompany about aspects of its operations, such as efficiency,liquidity and profitability. The calculations of Nybrostrand’sratio analysis from the balance sheet above will be used to checkwhether its performance is improving of deteriorating. Below are thecompany’s ratio analysis calculations.
Figure 3: nybrostrand ratio analysis
The figures above provide information about the company’s positionand ability to pay its liabilities through current assets. From theinformation, Nybrostand’s ratio is 1.11. This is an indication thatthe company is in a position of repaying its liabilities through theassets. This is a good sign of financial health. The table hasomitted information on the inventory, which is an extra calculationwhen determining the quick ratio. From the analysis of the availabledata, the quick ratio stands at 0.68.
The position of paying interest is determined by the debt to equityratio (Smith, 2010 and Drake, n.d). From the analysis, Nybrostrand’sdebt to equity ratio is 74%. This means that the company is in a goodposition to pay interest. However, paying more financial costs meansthat the company’s profitability will decrease. To increase theprofitability, the company has to ensure that it balances itsfinancing in terms of debts. An additional step is using shares togenerate money.
The company’s net profit ratio is 18.54%. This means that it isable to increase its earnings from sales, hence improving the profitratio. The 23% return on assets shows that the company has used itsassets effectively. Finally, the 39% return on equity is another signof financial health for Nybrostrand company.
Benedicto, M.S. (2008).Introduction to financialaccounting. IE BusinessSchool. A Multimedia Presentation. Retrieved 23 November 2015 from:openmultimedia.ie.edu.OpenProducts/financial_accounting/financial_accounting/frames.html
Drake, P. (n.d.). Financial RatioAnalysis. Retrieved 23 November 2015 fromhttp://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf
Smith, Barry. (2010). IntroductoryFinancial Accounting, Open University Press 2010 (read chapters 1, 2,3, and 11) from library portal.