Freshest Flowers in Town Florist
Autor: gfdgfdg • August 29, 2016 • Case Study • 1,174 Words (5 Pages) • 616 Views
QUESTION 2
Your presentation topic relates to a time-series analysis of ‘Freshest Flowers in Town Florist’. The following financial ratios have been calculated for the business at the end of 2012 and 2013:
Part A
Ratio | 2012 | 2013 |
Current Ratio (Liquidity) (Current assets/current Liabilities) | 1.74 | 2.66 |
Inventory Turnover (Liquidity) (cost of sales / average inventory) Days in Inventory | 83 times 4.3 days | 110 times 3.3 days |
Debt to Assets (Solvency) (total liabilities / total assets) | 33.9% | 35.1% |
Profit Margin (Profitability) (profit / sales) | 17.9% | 15.9% |
Return on Equity (Profitability) (profit / average equity) | 20.4% | 18.7% |
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Required:
Comment on the performance or position of Freshest Flowers in Town Florist over the two years. For each ratio, you must indicate which category they fall under (liquidity, solvency, profitability), explain whether the ratio is preferable if it is high/low/fast/slow etc , what may have caused each ratio to change and comment on how Freshest Flowers in Town Florist is positioned in 2013.
Current Ratio : Current assets compared to current liabilities, whether the firm has enough amount in CA to pay its CL in short-term. According to the business, for every $1 of CL, the business has 2.66 of CA to meet its short-term debts. This is favourable result because after paying its CL , the business has 1.66 left . compared to 2012, this ratio is higher by 0.92 Reasons : cash contribution, less drawings, Use credit for any stock purchase
Inventory Turnover: This ratio determine how many times on average the business sell their inventory. A lower number of days compared to previous period is a positive change as it shows that stock is being turned over at a faster rate. Reasons : increase demand such as Valentine day, increase advertising, improvement in the products, introdution of new products
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