Analysis of Financial Statement, Essay Example

Ratio Analysis

This is a statistical strategy for gaining insight into a company’s liquidity, profitability, and operational efficiency by analyzing financial statements including income statements and balance sheets. Olallieberry Pie Company will be subjected to a ratio examination (OPC). Ratios are used to determine the worth of a company’s shares within a specific industry. Ratios are employed in conjunction with other ratios rather than by itself. There will be numerous categories in our ratio analysis. Liquidity position, solvency ratio, total liabilities, and activity ratios are some of the other ratios. Liquidity ratios are used to assess a company’s capacity to meet its debt obligations using its assets. When a business is in financial trouble, it can convert its assets into cash and utilize the money to pay off all of its debts. A good liquidity ratio should be greater than one, demonstrating the worthiness of your investment. Better liquidity ratios are around 2 or 3. According to the Olallieberry Pie Company (OPC) data, all of its liquidity ratios, such as current ratio, quick ratio, and cash ratio, are above 1.5, indicating that the Company can pay its pending debts. Profitability ratios are used to assess a company’s ability to generate profits. A good company ratio is said to have a profitability ratio of between 10% and 20%. Based on the ratios, it is possible to conclude that the Company can generate profits from its operations.

Furthermore, the leverage ratio is used to assess a ability of the organization to meet all of its financial commitments. A lower leverage ratio will make it easier for a company to secure loans. Therefore, much work should be done to reduce the gearing ratio based on the Company’s leverage ratio. Finally, the activity ratio is a financial metric that indicates a company’s ability to leverage its assets on a balance sheet to generate cash and revenue. A high activity ratio suggests that a company efficiently uses its total assets. In contrast, a low ratio indicates that there is too much capital tied up in assets and that the assets are not being used to generate revenue efficiently. (Corporate Finance Institute, 2020).

Common size income statement

Every item line in a common size income statement is expressed as a percentage of sales or revenue. Financial managers use standard size analysis to analyze income statements. Investors can use standard size analysis to determine what is dragging profits and what is driving them. Percentages for several years are considered to identify trends that indicate what is very beneficial to the bottom line or what may be weighing on profits. Investors interested in the common size income statements of Olallieberry Pie Company (OPC) may want to know why gross profit decreased between 1996 and 1997. For the past five years, the Company’s operating expenses have increased, while its operating income has decreased due to the increased costs. The Company can increase its operating revenue by lowering its costs. Gross profits and wages have also been declining in recent years, which could be due to poor management or market changes; rehiring could help. Despite increased net sales, the Company’s gross profit is decreasing, which could be due to higher merchandise costs (Common Size Income Statement | Examples and Limitations, 2019).

Pro-forma

This type of analysis entails the analytical projection of a company’s potential financial positions based on historical data, potential cost savings, and operating metrics. It is also known as financial statement analysis because it reviews and analyzes a company’s financial statements to make better economic decisions and earn more money in the future. Income statements and balance sheets provide that information to the Company. It depicts a company’s income if some of its costs are avoided. A company can identify future value assumptions to project performance over an unspecified period. Looking at the income statements provided, there are two methods for analyzing the income statements: horizontal and vertical analysis. The vertical analysis involves analysts looking up and down the income statement to see how each item in line compares to revenue. Horizontal analysis compares earnings across the income statement year after year. In our case, we’ll use the vertical analysis method, and the comparison will be in percentage form. Looking at the difference between 2013 and 2012, the Company’s results have improved, with operating earnings increasing as have equity earnings. The balance sheet is also essential in financial statement analysis because it helps evaluate a company’s operational efficiency. The balance sheet metrics are divided into assets, liabilities, and equity. Over the last few years, the Company has increased its assets, both current and fixed assets. Over the years, the Company has also increased its total liability. This indicates that the Company is generating revenue efficiently and selling its inventory quickly. (Corporate Finance Institute, 2020)

Implementation

Integration is the process of transforming plans and strategies into actions in order to attain a strategic purpose and goal in company. For a business, the execution of a strategic plan is more crucial than the strategy itself. However, it is necessary to consider the implementation techniques before adopting a strategy, which include creating clear key variables, determining connections and duties, carrying out a plan, progress monitoring, performance, and providing continuous support. It is vital to comprehend the market program. The training system, which will include both online platforms and electronic correspondences, will be promoted through the implementation program, which will include an online platform and an electronic communication program. Another implementation program is the grasping customer motivation program, which informs the association’s marketing group about the clients’ psychology in relation to their purchasing behavior. Implementing this program will assist the marketing team in understanding what the customer prefers, allowing the Company to satisfy the customer’s taste. Implementing a search engine optimization (SEO) program improves the search results on Google. The SEO program encourages collaboration and learning about the intricate details of search showcasing and practices. The program will increase the program’s validity and trustworthiness, and the Company will eventually be able to reach its entire target audience.

Evaluation & Control Plan

Once drafted, a market plan should be reviewed, assessed, and finally adjusted to meet the needs of the Company. The Company must calculate the return on investment to ensure business success. This will aid in determining whether the Company’s capital invested in the business generates any income. The Company will be able to determine whether or not its plan of activities is working by reading the sales numbers. Customer feedback should also be included in the plan, and customer opinions should be reviewed regularly. The Company will undoubtedly succeed if it makes its products more appealing. For the Company to achieve its control mission, it must conduct an audit of the management’s assessment of the management. Internal and external audits are in charge of assessing the effectiveness of internal business controls.

Implementation and execution are critical components of business success. Even if a company has a good strategy, it will not be successful unless it has a strong implementation, evaluation, and strategy control. The evaluation measures the accomplishments made with the goal of meeting market objectives. Finally, the control provides the mechanism for carrying out the marketing objectives outlined in the marketing plan (Strategy’s Implementation, Evaluation, and Control | Free Essay Example, 2020).

References

Corporate Finance Institute. (2020, January 25). Ratio Analysis. Corporate Finance Institute; Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/ratio-analysis/

? Common Size Income Statement | Examples and Limitations. (2019, November 2). EDUCBA. https://www.educba.com/common-size-income-statement/

? Strategy’s Implementation, Evaluation, and Control | Free Essay Example. (2020, October). StudyCorgi.com. https://studycorgi.com/strategys-implementation-evaluation-and-control/

? Corporate Finance Institute. (2020, March 30). Analysis of Financial Statements. Corporate Finance Institute; Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/analysis-of-financial-statements/