Analysing the Financial Performance of Domestic Dog Homes

1425 Words Feb 27th, 2013 6 Pages
In this part of my report, I will explain in depth how these ratios are used to monitor the financial state of Domestic Dogs Homes. I will also assess the company’s performance generally.

Part 3: Analysing the financial performance of Domestic Dog Homes

Profitability ratios

Gross Profit Margin:

This ratio is used to assess a company’s financial performance by revealing the money left over from the revenues. Gross Profit Margin also serves as the source for paying additional expenses and future savings.
According to Domestic Dog Homes’ profit and loss account, it has obtained a reasonably high percentage of gross profit which means that the company is doing well and will be able to control the costs of its
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Thus, this ratio helps a business to get rid of bad debts. According to the balance sheet of Domestic Dog Homes, the debtors have 9 days to pay back to the company which is good as the business would be able ton get its money back quicker and make the necessary changes to get rid of bad debts.

Conclusion: Overall it seems that Domestic Dog Homes is financially in an unstable state as it is either performing reasonably well in order to survive or it is not doing so well is particular areas, e.g. current ratio and asset turnover.

Part 4: the advantages and limitations of using Ratios

There are several advantages and disadvantages of using ratios to assess and monitor the financial state of Domestic Dog Homes and they are: • The ratios forecast the future: They indicate whether Domestic Dog Homes will be able to pay its debts and whether it will be able to survive. For instance the current ratio gives the company an insight of whether it will have enough money to pay back its debts and whether it will have to gain more money in order to cover the costs of its expenses as well as its debts. However the disadvantage of this is that these ratios focuses on specific areas of the company’s financial state and does not look at the overall performance hence it is the duty of Domestic Dog Homes to check whether it is progressing overall. • Strengths and weaknesses: The ratios also point out the strengths and weaknesses of a
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