Analyzing Financial Performance Through Ratio Analysis

School: Southern New Hampshire University - Course: ACC 307 - Subject: Accounting

ACC 307 Final Project Part II: Ratio Analysis Report Miriam Williams Southern New Hampshire University

The liquidity determines if the company will be able to pay off short term debtors and what assets could be sold quickly to convert into cash. Profitability shows the company's profits from sales or operations, balance sheet assets, or the shareholder's equity. Peyton's Approved quick ratio shows in good standing with 1.66 in liquid assets. If the company would need to pay back its short term debts selling off current assets will be negotiable. Managing the cash flow for Peyton Approved to sustain itself and the resources needed to successfully operate will take maintaining the current sales, while being creative and flexible to new opportunities to boost sales. Calculating the Gross Profit: $217,715.00, Shareholder's Equity: $93,642.39, Net income: $83,642.39, Quick Assets: $85,829.00, Current Liabilities: $51,593.75 and Total Revenue: $370,875.00 will provide the results in the diagram below for quick ratio, gross margin, net margin and return on equity for 2017. Quick Ratio: $85,829/$51,593.75= 1.66 Gross Margin: $217,715/$370,875= .59 Net Profit: $83,624.39/$370,875= .23 Return on Equity: $83,642.39/$93,642.39= .89 Comparison Ratios: 201720162015Industry Standard Quick Ratio1.662.22.81.75 Gross Margin.59.55.7.7 Net Margin.23.22.32.24 Return on Equity.89.9.78.8 "Ratio analysis is a cornerstone of fundamental equity analysis." (Bloomenthal, Andrew Aug. 17, 2022)When comparing past years ratio analysis will help determine if the company is improving or falling behind. "Companies will experience liquidity problems when their cash

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inflows are not sufficient to their outflows." (Wahlen, J.M., Jones, J.P., & Pagach, D.P. 2017 Chap. 9) Reviewing the quick ratio shows that over the past two years it has started to decline, yet still within the industry standards. The gross margin has since started to decline during 2015, slightly in 2016 and rose again in 2017. Net profit has stumbled over the years and barely maintaining within the industry standards. Following the return on equity we see that it rises above the industry standards that indicates even with 2016 being below a .1% ratio, it is still able to return on investments and has maintained steady industry average throughout the years. Analyzing the recorded ratio's will provide an insight into Peyton's Approved financial profitability, liquidity and the operational standings. Quick ratio, gross margin, and net margin have fluctuated over the years, yet this is an opportunity to learn from the reasons and improve on those factors going forward. "Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions." (Segal, Troy Aug. 25, 2022) Barely meeting industry standard will need to be improved across the board in order to maintain a strong, thriving business and to keep the investor's from declining to invest or selling out.