Question

Company 1

Company 2

Write a summary of the ratio analysis and outline the strengths and weakness of each company.

Answer 1

Ratio analysis explains us about different ratios under the finance domain . It gives the overview of a company that how a company works , what is strength , weakness , companies condition to pay back interest to its lenders, companies condition to manage its cash requirements , companies profitability, companies change in sales in a single period of time and many over . From Ratio analysis one can comment on how a company is working and what is it priorities ,its debt in total capital .

Now we come to strengths and weakness of each company .

Company 1.

Strengths:-

1.Companies cash has increased from last year that means it can manage its day to day expenses .

2, Trade receivables are decreasing that is a good sign that means receivables average recover days became less .

3.companies Prepaid expenses increases that means company is paying interest on timely basis .

4.companies plant and machinery and depreciation is decreasing that means company did not required more money to maintain expenses regarding plant and machinery.

5.Increase in long term investment and decrease in intangible assets and accounts payable and debt is a good sign .

Weakness:-

Increase in inventories means unwanted stock ,large amount of assets includes intangible assets and goodwill is a symbol unsecured or suspicious assets regarding any company ,current liabilities are more than current assets that means it requires more working capital ,

Company 2.

Strengths :-

Large number of cash always gives you the sign that company is more liquid ,PPP is decreasing that means it not requires to invest more on PPP, Account payable decreasing explains that company is paying its creditors on timely basis ,debt is decreasing that means that this company did not required pay more tax in next coming years , increase in long term investments ,prepaid expenses are the things that explains it is sound with long term needs

Weakness:-

Increase in trader receivables means there is more credit sale and days in trade receivables are increasing ,current assets are less than current liabilities that means it requires more working capital,large amount of total assets comes from goodwill and intangible assets that means there is suspicious assets and worst things can be all is cunningly recorded ,tax payable, dividend payable,cash advances from customers are increasing that means there may be suspicious liabilities to show now in books and will work as assets when company in bad condition ,deferred tax,pensions,other current liabilities are increasing that means company need to pay more in future .