Income Statement For The Year Ended Finance Essay

In the late 1990s Super Kool Industries was established in the Sharjah. This company is good known for the industry of air conditioners and constituents of same. In the North Africa and nearby provinces of Sharjah most air conditioners are supplied by Super Kool Company. In 2002 company follows the enlargement scheme to run into the increasing demand of air conditioners.

Common Size Statement

Common size statement is a fiscal statement in which all the variables are calculated as a per centum of the base figures. These statements are utile for analysing the behaviour of tendencies of fiscal variables.

Income Statement

Income statement is the fiscal statement of an organisation which is used to mensurate the fiscal public presentation of that organisation over a given accounting period by measuring how grosss is turned into net income.

Balance Sheet

Balance sheet of a company is that fiscal statement that summarizes the entire assets, entire liabilities and equity of stockholders at a fix point of clip.

1- Common Size Financial statements for “ Super Kool Industries for the 2009 and 2010:

Income statement

Super Kool Industries

Income Statement for the twelvemonth ended December 31

( All Amount in AED )

A

2009

2010

Change

Gross saless Grosss

450,000.00

100 %

520,000.00

100.00 %

0.00 %

Less: Cost of goods sold

270,000.00

60 %

338,000.00

65.00 %

5.00 %

Gross Net income

180,000.00

40 %

182,000.00

35.00 %

-5.00 %

Less: Operating disbursals

45,000.00

10 %

52,000.00

10.00 %

0.00 %

EARNING BEFORE Interest

AND Tax

135,000.00

30 %

130,000.00

25.00 %

-5.00 %

Less: Interest Expense

9,000.00

2 %

26,600.00

5.12 %

3.12 %

EARNING BEFORE Tax

126,000.00

28 %

103,400.00

19.88 %

-8.12 %

Less: Tax ( 30 % )

50,400.00

11.2 %

41,360.00

7.95 %

-3.25 %

Net incomes AFTER Tax

75,600.00

16.8 %

62,040.00

11.93 %

-4.87 %

Balance sheet

Super Kool Industries

Balance Sheet, Dec 31

( All Amount in AED )

A

2009

2010

Change

Assets

Current Assetss

Cash

42,000.00

7 %

46,500.00

6 %

-1 %

Histories Receivable

78,000.00

13 %

131,750.00

17 %

4 %

Inventory

60,000.00

10 %

93,000.00

12 %

2 %

Entire Current Assets

180,000.00

30 %

271,250.00

35 %

5 %

Internet Plant and Equipment

420,000.00

70 %

503,750.00

65 %

-5 %

TOTAL ASSETS

600,000.00

100 %

775,000.00

100 %

0 %

A

LIABILITES

Current Liabilitiess

Histories Collectible

115,500.00

19.25 %

195,300.00

25.20 %

5.95 %

Other liabilities

148,500.00

24.75 %

97,650.00

12.60 %

-12.15 %

Entire Current Liabilitiess

264,000.00

44.00 %

292,950.00

37.80 %

-6.20 %

Long-run Liabilitiess

Bank loan

66,000.00

11.00 %

195,300.00

25.20 %

14.20 %

Entire LIABILITIES

330,000.00

55.00 %

488,250.00

63.00 %

8.00 %

SHAREHOLDLERS EQUITY

Common Stock

250,000.00

41.67 %

250,000.00

32.26 %

-9.41 %

Retained Net incomes

20,000.00

3.33 %

36,750.00

4.74 %

1.41 %

Entire Shareholders ‘ Equity

270,000.00

45.00 %

286,750.00

37.00 %

-8.00 %

TOTAL LIABILITIES & A ; Stockholders

Equity

600,000.00

100.00 %

775,000.00

100.00 %

0.00 %

Ratios

Fiscal ratios are used to measure the profitableness, liquidness, solvency and capital market strength. These ratios assist the directors in measuring the public presentation of the company. The different ratios for the supercool industries are:

Relevant Ratios for 2009 & A ; 2010

2009

2010

Current Ratio

0.68 times

0.93 times

Quick Ratio

0.45 times

0.61 times

Account receivable Employee turnover

5.77 times

3.95 times

Average Collection Period

63.26 Dayss

92.41 Dayss

Inventory Employee turnover

4.5 times

3.63 times

Entire Asset turnover

0.75 times

0.67 times

Debt – To – Entire Assetss

0.55 times

0.63 times

Debt – Equity

0.45 times

0.37 times

Timess Interest Earned

15 times

4.89 times

Net income Margin ratio

16.80 %

11.93 %

Tax return on Assetss ( ROA )

12.60 %

8 %

Tax return on Equity ( ROE )

28 %

21.64 %

The computations if the ratios are given below:

Current Ratio = Current Assets / Current Liabilitiess

2009 = 180,000/ 264,000 = 0.68 times

2010 = 271,250/ 292,950 = 0.93 times

Quick Ratio = ( Current Assets – Inventory ) / Current Liabilitiess

2009 = ( 180,000 – 60,000 ) / 264,000 = 0.45 times

2010 = ( 271,250 -93,000 ) / 292,950 = 0.61 times

Account Receivable Turnover = Gross saless / Account Receivable

2009 = 450,000 / 78,000 = 5.77 times

2010 = 520,000/ 131,750 = 3.95 times

Average Collection Period = Days gross revenues in receivable = 365 yearss / Receivable Employee turnover

2009 = 365 / 5.77 = 63.26

2010 = 365 / 3.95 = 92.41

Inventory Turnover = Cost Of Goods Sold / Inventory

2009 = 270,000/60,000 = 4.5 times

2010 = 338,000/93,000 = 3.63 times

Entire Asset turnover = Gross saless / Entire Assetss

2009 = 450,000/ 600,000 = 0.75 times

2010 = 520,000/ 775,000 = 0.67 times

Debt – To – Entire Assetss = ( Total Assets – Entire Equity ) / Entire Assetss

2009 = ( 600,000 – 270,000 ) / 600,000 = 0.55 times

2010 = ( 775,000 – 286,750 ) / 775,000 = 0.63 times

Debt – Equity = Total Debt / Total Equity

2009 = 0.55 / ( 1 – 0.55= 0.45 ) = 1.22 times

2010 = 0.63 / ( 1 – 0.63 = 0.37 ) = 1.70 times

Timess Interest Earned = Net incomes Before Interest Tax / Interest

2009 = 135,000/9,000 = 15 times.

2010 = 130,000/26,600 = 4.89 times

Net income Margin ratio = Net Income / Gross saless

2009 = 75,600/ 450,000 = 0.168 * 100 = 16.80 %

2010 = 62,040/ 520,000 = 0.1193 * 100 = 11.93 %

Tax return on Assetss ( ROA ) = Net Income / Total Assetss

2009 = 75,600/ 600,000 = 0.126 * 100 = 12.60 %

2010 = 62,040/ 775,000 = 0.08 * 100 = 8 % cubic decimeter ; ; ; ;

Tax return on Equity ( ROE ) = Net Income / Total Equity

2009 = 75,600/ 270,000 = 0.28 * 100 = 28 %

2010 = 62,040/ 286,750= 0.21635 * 100 = 21.64 %

Analysis of ratios:

Analyze Financial Statement

2009

2010

Liquidity Ratios

Current Ratio

0.68 times

0.93 times

Quick Ratio

0.45 times

0.61 times

The liquidness ratio measures the liquidness of the company i.e. ability of house to fulfill its short-run duties as they come due. It is chiefly of two types: the current ratio and the speedy ratio ( AccountingExplained, 2012 ) .

The current ratio step the size of current assets with regard to the current liabilities. The current ratio for the company is 0.93 which is higher in comparing of 2009 i.e. 0.68 bespeaking that company has less debt funding in 2010 as compared to 2009. So the company has improved in its funding status over the twelvemonth.

But the current ratio in comparing to industry norm is still low i.e. 0.93 as compared to industry norm of 2.2. The fiscal status of the company is bettering but it needs more betterment in coming old ages to make the industry norm.

The speedy ratio measures the size of the most liquid current assets with regard to the current liability. Quick ratio of the company is 0.45 in 2009 and 0.61 in 2010 but as per industry criterion it should be equal to 1.4 bespeaking company ‘s stock list is non much liquid. It is increased over the twelvemonth but still needed betterment to make industry norm.

2009

2010

Fiscal Leverage

Account receivable Employee turnover

5.77 times

3.95 times

Average Collection Period

63.26

92.41

Inventory Employee turnover

4.5 times

3.63 times

Entire Asset turnover

0.75 times

0.67 times

The fiscal purchase ratio besides called activity ratio measures the how rapidly the house converts its current assets into hard currency ( AccountingExplained, 2012 ) .

Histories receivable turnover ratio measures the effectivity of the house in the roll uping its recognition gross revenues sum. The AR ratio shows unfavourable tendency bespeaking the in-efficiency of the company in roll uping its outstanding gross revenues sum. Besides less every bit compared to industry mean i.e. 6.8 so company needs betterment in its schemes to increase this ratio.

The mean aggregation period indicates the clip taken by the company to roll up its history receivables. The besides shows the unfavourable tendency as addition over the period and besides high as compared to industry norm of 60 yearss. So company has to believe over its aggregation schemes.

The stock list turnover ratio measures the stock list direction effectivity of a house. Higher the stock list turnover ratio better be the public presentation of the company and frailty versa. This ratio besides shows the unfavourable tendency over the period bespeaking the house needs long clip to travel its stock list. As compared to the industry norm it is less in 2010.

The plus turnover ratio measures the house ‘s net gross revenues over the entire assets. Even this ratio is diminishing over the period bespeaking the company is non able to expeditiously pull off its assets. This is besides less every bit compared to industry norm so company has to do effectual schemes to decently use its assets.

2009

2010

Employee turnover Ratios

Debt – To – Entire Assetss

0.55 times

0.63 times

Debt – Equity

0.45 times

0.37 times

Timess Interest Earned

15 times

4.89 times

The turnover ratios measures the sum of debt used in an effort to maximise the stockholders wealth. The different types of turnover ratios are debt ratio or debt to entire ratio, debt to equity ratio and times involvement earned ratio ( rhino, 2012 ) .

The debt ratio measures the proportion entire assets financed by the creditors. The debt ratio of the steadfast addition over the period which is non favourable for the company. Besides it is higher as compared to industry norm which is 0.4 times bespeaking high hazard in operation of the company as house would happen trouble in acquiring loans for future undertakings.

The debt to equity ratio step the proportion of long term debt in the stockholders equity. The lower value of this ratio is favourable for the house as company has to pay involvement on the long term debts. This ratio shows the favourable tendency over the period and besides it is less every bit compared to industry mean i.e. 0.66 bespeaking most of the long term debt is financed by the company itself.

The times involvement ratio measures the long term ability of the house to pay its debt. Higher value of this ratio is favourable for the company but for the supercool industries is non demoing favourable tendency i.e. diminishing drastically over the period from 15 to 4.89 times. Besides less every bit compared to industry norm in 2010 i.e. 10 times so company finds trouble in acquiring loans for the creditors as the ratio is really low.

2009

2010

Profitability Ratios

Net income Margin ratio

16.80 %

11.93 %

Tax return on Assetss ( ROA )

12.60 %

8 %

Tax return on Equity ( ROE )

28 %

21.64 %

The profitableness ratio measures the grade of operating success of a company.

The net income border has besides been decreased over the period from 16.8 % 2009 to 11.93 % in 2010 and besides less every bit compared to industry mean i.e. 18 % bespeaking its net income per unit gross revenues has decreased and even company non able to keep its net income border compared to industry norms.

The return on assets has besides decreased by approx. 4.6 % from 2009 to 2010 bespeaking negative impact on the profitableness of the company. It is even really less as compared to the industry i.e. 21 per centum.

The return on equity of the company besides decreased by 7 per centum about from 2009 to 2010 and besides it less as compared to industry mean i.e. 31 per centum. It is clearly bespeaking the company portions non much profitable for the stockholders so hazard of losing stockholders in hereafter.

Decision

We can see that values of fiscal ratios for this company of non bespeaking positive mark for this company. The current ratio for the company is 0.93 which is higher in comparing of 2009 i.e. 0.68. Quick ratio of the company is 0.45 in 2009 and 0.61 in 2010 but as per industry criterion it should be equal to 1.4 bespeaking company ‘s stock list is non much liquid. The Account Receivable ratio shows unfavourable tendency bespeaking the in-efficiency of the company in roll uping its outstanding gross revenues sum. Average collection period of this company is demoing unfavourable tendency as addition over the period and besides high as compared to industry norm of 60 yearss. Inventory turnover ratio and plus turnover ratio are besides non demoing positive marks. The debt ratio of the steadfast addition over the period which is non favourable for the company. Besides it is higher as compared to industry norm which is 0.4 times bespeaking high hazard in operation of the company as house would happen trouble in acquiring loans for future undertakings. Debt to equity ratio shows the favourable tendency over the period and besides it is less every bit compared to industry mean i.e. 0.66 bespeaking most of the long term debt is financed by the company itself. The net income border has besides been decreased over the period from 16.8 % 2009 to 11.93 % in 2010 and besides less every bit compared to industry mean i.e. 18 % . The return on equity of the company besides decreased by 7 per centum about from 2009 to 2010 and besides it less as compared to industry mean i.e. 31 per centum. Overall public presentation of this company and direction of fiscal resources is non satisfactory as most of the fiscal ratios are demoing negative mark for the company. Thus company must convey alterations in their schemes and manner of fiscal direction of the company.