Ratios 2024 2023
Current Ratio 3.25:1 2.97:1
Cash 4 8
Accounts Receivable 960 750
Inventory 500 400
Current Assets 1,464 1,158
Current Liabilities 450 390
3.25 2.97
Quick Ratio 2.14:1 1.94:1
Cash 4 8
Accounts Receivable 960 750
Quick Assets 964 758
Current Liabilities 450 390
2.14 1.94
Average collection period for receivables 81 days 76 days
Net Credit Sales 3,840 3,600
Average Receivables 855 750
Accounts Receivable Turnover (Times) 4 5
Days in a Year 365 365
Accounts Receivable Turnover (Times) 4 5
Days Receivables Outstanding 81 76
Average turnover period for inventory 73 days 61 days
Cost of Goods Sold 2,250 2,160
Average Inventory 450 360
Inventory Turnover (Times) 5 6
Days in a Year 365 365
Accounts Receivable Turnover (Times) 5 6
Days Receivables Outstanding 73 61
Return on Assets 2.82% 2.62%
Net Income 90 80
Average Total Assets 3,191 3,058
2.82% 2.62%
Interpretation
A 9% increase in current ratio is a positive indicator of the company's financial performance as it now has $3.25
available for every dollar of short-term liabilities
A 10% increase in quick ratio is a positive indicator of the company's financial performance as it has further
improved its ability to finance its short-term obligations using its assets that are easily converted into cash
An increase in average collection period for receivables by 7% (from 76 days to 81 days) coupled with a 14%
increase in average accounts receivables is an indicator that the company takes longer in collecting from its
customers. The company needs to improve its collection efficiency in order to manage cash inflows and avoid
the potential increase in bad debts.
An increase in inventory turnover period by 20% (from 69 days to 73 days) coupled with only 4% increase in cost
of goods sold and a 25% increase in average inventory levels indicate that there is a slight slowdown in sales. The
company needs to either increse the level of sales or manage inventory levels to effectively maximize and control
the costs of maintaining inventories.
The increasing trend in its ROA indicates that the company has improved in terms of managing their assets to
generate profit. The single-digit rate, however, may still need to be further improved as they only generate a
profit of around 0.3 cents for every dollar of asset. This can improve this by ramping up sales or reducing
costs/operating expenses.
Annual Depreciation Computation
Purchase Price 200,000
Less: Salvage Value 40,000
Depreciable Amount 160,000
Useful Life 4
Depreciation Expense 40,000
Year Depreciation Expense Accumulated Depreciation
2021 40,000 40,000
2022 40,000 80,000
2023 40,000 120,000
2024 40,000 160,000
Contra-accounts are accounts used to reduce the balance of a related financial statement account with the purpose
of bringing a certain account to its current value (e.g., net realizable value, net book value), while maintaining its
original book value (carrying amount). Examples of contra-accounts include allowance for doubtful accounts,
accumulated depreciation, sales returns and discounts, among others.
Companies would usually increase their accounts receivable collection period to make their credit terms more
attractive for customers, thus potentially driving revenue growth and increased customer base. Another reason
could be to maintain business partnerships with exiting customers, especially those who have been engaging with
the company for a long period and brings in significant amounts of revenues.
Ratios 2024 2023
Gross Profit Margin 18% 17%
Revenue 159,337 126,875
Gross Profit 27,965 21,444
Net Profit Margin 10% 6%
Revenue 159,337 126,875
Profit after Tax 15,799 7,226
Interpretation
The increasing trajectory of the company's gross profit
and net profit margins shows that it is able to maintain
its profitability by growing its revenues while effectively
managing its expenses.
