Accounting, Decisions and Accountability Essay Example | Topics and Well Written Essays - 1500 words

Accounting, Decisions and Accountability - Essay Example This certainly provided some help to dwindling liquidity and working capital finance of the company. The company is not even in a position to maintain a better interest coverage. Gross profitability showed some recovery signs in 2007 but the initiative was taken away by overheads and other non-operative expenditure resulting into very marginal net margin recoveries before taxes and interests (EBIT). Though net margin evaluation has been based on EBIT, it is necessary to point out that even such small recovery was taken away by interest, taxes and extraordinary items, and finally the year 2007 turned into a huge loss year. The detailed analysis here in this writes up shows that company is facing more difficulties than the available opportunities. Chia Liang Chu inherited 200,000 shares in Sing Chip Ltd. from her grand mother. The inheritance put her in dilemma of keeping or selling the shares. Accordingly a financial analysis was required of the financial statements of Sing Chip Ltd., before any recommendation could be put forward to Chia Liang Chu. Three years financial statements have been analyzed in this write up using financial ratios as method of analysis. The analysis have been made to evaluate, profitability, liquidity, and financial stability (solvency) of the company, considering its performances over a period of three years, in order to arrive at logical conclusion, so that a proper recommendation is made to Chia Liang Chu. Profitability of an entity is viewed from two different angles. One is profitability in relation to turnover or sales, and other is profitability in relation to investment. From the point of view of sales, profit is considered by calculating Gross profit ratio and Net profit ratio. In relation to investments, profitability is considered as per rate of return on equity or the ROE, and profitability as per return on assets or ROA. Gross Profit ratio is defined as