Financial Report On Financial Performance

3259 Words Jul 7th, 2015 14 Pages
Part- A
Answer- 1- Financial Report Based on the financial ratios given, this section will compare and contrast the financial strengths of Company X and Company Y in order to suggest Tringale Ltd to take decision regarding which of the above companies to chose for investment. This section provides comments on financial performance areas based on the data given, and presents report to the Board of Directors of Tringale Ltd by recommending which of the two investment opportunities is better.
Comments on Financial Performance
Current Ratio: Current ratio of Company X and Y is 1.80, and 2.55 respectively. This ratio presents the proportion of current assets to current liabilities. This ratio provided a measure of degree to which current assets cover current liabilities. Since both companies have excess of current assets over their current liabilities, they met basic requirement of safety margin against uncertainty in realization of current assets and funds flows. Generally, it is suggested that a firm should have neither a very high ratio nor a very low ratio. Very high ratio implies heavy investments in current assets reflecting under utilization of the resources. A very low ratio endangers the business in to risks of not being able to pay short term requirements. Normally, it is advocated to have the current ratio as 2:1 (Baker and Powell, 2009). Company Y has 2.55, which implies relatively under utilization of the resources. Company X has 1.8, which is preferable…
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