Financial Ratio Analysis Assignment Help
Ratio analysis helps to analyze and assess the overall financial performance of a company. For this financial statement case study analysis assignment help paper, Abercrombie & Fitch Co, American retailer company that provides casual wear for customer in United States, is selected for which two years financial ratios are calculated for analysis (Abercrombie & Fitch, 2012). To evaluate the overall performance of company profitability, liquidity and leverage ratio are calculated that will help to assess and compare financial performance over the period.
| Abercrombie & Fitch | |||
| 2011 | 2010 | ||
| Profitability ratios: | |||
| Gross profit margin | Gross Profit/Sales | 60.58% | 63.77% |
| Sales | 4158058 | 3468777 | |
| Gross profit | 2518870 | 2212181 | |
| Net profit margin | Net Profit/Sales | 3.07% | 4.33% |
| Net Profit | 127658 | 150283 | |
| Return on Shareholders’ equity | Net profit/Total Shareholders’ equity | 6.75% | 8.22% |
| Total Shareholders’ equity | 1890784 | 1827917 | |
The above appendix shows that the overall financial performance of Abercrombie & Fitch has decreased in 2011 in compare to last year because of decline in profitability ratios. Decline in net income, gross margin and return on shareholder’s equity return shows that the business is going towards decline that is not suitable for investors. It shows that financial performance is not good.
| 2011 | 2010 | ||
| Liquidity ratios: | |||
| Current ratio | Current assets/Current Liabilities | 2.57 | 2.73 |
| Current Assets | 1433826 | 1225683 | |
| Current Liabilities | 558851 | 449372 | |
| Quick ratio | (Current assets-Inventory)/Current Liabilities | 1.88 | 2.04 |
| Inventory | 385857 | 310645 | |
| Inventory Turnover ratio | Cost of goods sold/Inventory | 4.25 | 4.05 |
| Cost of goods sold | 1639188 | 1256596 |
Current ratio and quick ratio of Abercrombie & Fitch Co has declined over the last year because of increase in current liabilities at higher rate as compared to current assets. Decline in liquidity ratio indicates that company has faced shortage of sufficient cash to pay its short-term liabilities and working capital in the business (Nikolai, Bazley & Jones, 2009). Quick ratio and inventory turnover ratios represent that increase in inventory affect the ability of organization to meet short term obligations due to increase in investment in inventory that may cause an increase overall cost of business.
| 2011 | 2010 | ||
| Leverage ratios: | |||
| Debt to assets ratio | Total debt/Total assets | 0.17 | 0.19 |
| Total Debt= Long-term debt + short term debt | 498267 | 544577 | |
| Total assets | 2947902 | 2821866 | |
| Debt to Equity ratio | Total Debt/Total shareholders’ Equity | 0.26 | 0.30 |
| Times covered ratio | EBIT/Interest Expenses | 53.13 | 68.99 |
| EBIT | 190030 | 231932 | |
| Interest expenses | 3577 | 3362 | |
| Earnings per share | (Profit after tax-Pref dividend)/ Number of equity share | 1.45 | 1.71 |
| Profit after tax-Pref dividend | 126862 | 150283 | |
| Number of equity share | 87200 | 88000 |
Debt to assets and debt to equity ratios represent that Abercrombie & Fitch’s total debt has decreased over the last year. Decline in debt percentage represent that organization is financed by internal capital rather than external capital that reduces overall risks and increases solvency position of organization in long-term (Bragg, 2012). Firm’s equity has increased, but due to decline in profit, its earnings per share have decreased. It indicates negative growth of earning on each share that means company’s overall performance is declining in compare to last year. On the other hand, it cannot generate appropriate return for the investors that may affect interest of shareholders.
Investment Decision Investment should be taken by considering several aspects and organization financial performance into consideration. Abercrombie & Fitch’s overall financial performance has decreased over the last year that indicates shareholders are not earning sufficient return on investment. Investor should not invest in Abercrombie & Fitch because company’s profitability has declined in compare the past year and consequently the value of shareholders too as return on equity has declined from 8.22% to 6.75% in 2011 from 2010. Investors also need to be aware of earning manipulation, while taking investment decision (Axelby, 2003). The decline in EPS from 1.71 per share to 1.45 per share and liquid also create a risk for investors. References Abercrombie & Fitch. (2012). Investors. Retrieved from: http://www.abercrombie.com/anf/investors/investorrelations.html Abercrombie & Fitch. (2012). Retrieved from: www.Abercrombie.com Axelby, G. (2003). CIM Coursebook 02/03 Management Information for Marketing Decisions. Italy: Taylor & Francis. Bragg, S.M. (2012). Business Ratios and Formulas: A Comprehensive Guide (3rd ed.). USA: John Wiley & Sons. Nikolai, L.A., Bazley, J.D. & Jones, J.P. (2009). Intermediate Accounting (11th ed.). USA: Cengage Learning. How to get Financial Ratio Analysis Assignment Help with assignmenthelpexperts.com Assignmenthelpexperts.com is the place where students can get assignment writing services from qualified and experienced assignment writers of US, UK and Australia. Students who need any topic academic assignment help can touch with our 24X7 live support system or can send e-mail at info@www.assignmenthelpexperts.com