Financial position analysis

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Topic: Financial statement analysis

Financial position analysis

Introduction

The financial position report is that analyses the degree or rate at which a firm yields or gains
profit (Castrén & Kavonius, 2009). This is a financial position report of Sparkling clean
reporting the assets, liabilities and the equity of the firm for the month of July 2018.

Profitability (Profit margin, Rate of return on total assets)

This is basically the measure of the profitability any given firm. It is a yield given by the firm,
whether profit or loss. For Sparkling clean the profit margin is:

(Gross profit × 100)⁄

Gross profit percentage = Net sales
= ($4520 × 100)⁄
$1920
Profit margin=0.235

23.5%

A profit margin of 0.235 means that in the month, the company made a profit of 35% in the month
meaning that assets return the desired profit at a rate of 35%.

Liquidity （Current Ratio）

The problems that arise in the business field is often caused by shortages of cash and assets can
be easily converted into cash. Liquidity is the ability of a firm to easily convert its assets into
cash within a year without making any loss. The current ratio of Sparkling clean is

Current ratio = Current Assets⁄

Current liabilities
Current ratio = $15487⁄
$1444
=10.7251

10.7251 shows that the firm is at a good position compared to the standard bar of 2.00 (Gamba &
Triantis, 2008). This shows that the firm has adequate assets that that can be used to pay the
debts

Financial position （Debt-to-equity Ratio, Debt-to-assets Ratio）

Financial position analysis

The calculation of both debt to equity and debt to assets ratios are:

Debt to equity ratio = Total liabilities

⁄Total equity

Debt to equity ratio = $1444⁄

$21658
=0.067
Debt to assets ratio = Total liabilities⁄
Total assets
Debt to assets ratio = $1444⁄
$23102
=0.063

The debt to equity ratio of the firm is 0.067 meaning that the debts that the firm are tackling are
very low. They do not out-way the assets of the firm and therefore the firm stands on a good
position. The debt to assets ratio is 0.063 meaning the assets out way the debts that the firm us
holding.

Conclusion and recommendation / Strategies

The given data belongs to only a single month, this therefore means that the conclusions given
cannot be used to give long term recommendations to the firm. With the high liquidity of the
firm, the firm are in a position to meet less risks that are caused by the changes of price and
thereby gain more profits through changing the prices (Emery & Cogger, 1982). The firm also
has an advantage of assets liquidity that gives it a chance to get more loans from institutions so
that they can increase the capital and expand the company. The main limitation is that the firm
has not maximized the advantages that come with the availability of high liquidity of the
company assets.
Financial position analysis

References
Castrén, O., & Kavonius, I. K. (2009). Balance sheet interlinkages and macro-financial risk
analysis in the euro area.

Gamba, A., & Triantis, A. (2008). The value of financial flexibility. The journal of
finance, 63(5), 2263-2296.

Emery, G. W., & Cogger, K. O. (1982). The measurement of liquidity. Journal of accounting
research, 290-303.