Ratio Analysis Report

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EXECUTIVE SUMMARY

The purpose of the following report is to aid Over the Hill Pty Ltd in planning the direction that the company may want to go over the next few years. The report entails a financial analysis and summaries, which will give the executive board an understanding of how well the current managing director is performing, and whether his contract should be renewed.

Figures were obtained from comparative balance sheets and profit and loss statements from the relevant years as well as additional information that was forwarded by the board. This information enabled the development of percentage and ratio analysis (see appendices), which was then used to create the report.

The investigation revealed that the company had
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The receivables turnover has significantly decreased over the three-year period and has indicated an improvement in the crediting procedures that have been developed within the company. The average collection period has decreased significantly to an average of 42 days, which enables the company to use this money within the business at an earlier stage.

Poor sales and lower inventory balances in 2001 contributed to the inventory turnover dropping to almost 3 times a year. This improved slightly in 2002 as sales picked up within the business. This does affect the liquidity but does not have a real damaging effect to the products sold due to the nature of the business (antiques).

The liquidity ratios do indicate that Over the Hill Pty Ltd is in a stable position and is a reasonably liquid business. This would need to be carefully observed over time tough to guarantee the short-term obligations of the business.

SOLVENCY

The debt and Equity ratios are valuable tools used to indicate asset protection and therefore the long-term stability of the company. Over the Hill Pty Ltd had a strong long-term position in 2000 due to the smaller amount of liabilities it had. As these liabilities have grown, the assets have fluctuated slightly but have not increased much in the three-year
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