Financial accounting College Essay Example | Topics and Well Written Essays - 750 words

Financial accounting College - Essay Example n both the years because of economic recession and payment of debt which in the end can't help the company's perspective to hold the cash at the optimum level. Net Profit of the firm is fair enough in both the years but due to mismanagement or lack of operational management Fab Footwear Limited reported lower profit in the year 2008 but in the year 2009 Fab Footwear Limited's management revised its strategy and redefines its role in the business which in the end generates revenues at upside. No significant moment is observed in the payment of dividends to the stock holders. Inefficient and ineffective working capital management policies through out the period from 2008 to 2009 and I assume that this policy will not continue in the future. Fab Footwear Limited should adopt a strong strategy between trade debtors and trade creditors because in the end it makes an impression on the operating cycle of the firm. Task 2 NAME OF RATIO CALCULATION RATIO FOR 2008 RATIO FOR 2009 COMMENT ON EACH RATIO Current ratio 2008: 670/620 2009: 1520/1900 1.08 0.8 Fab Footwear Limited current ratio is slightly lower in the year 2009 as compared with the year 2008 and indicates a lower margin of safety with respect to meeting current obligations. Fab Footwear Limited current ratio will not allow them to take more debt as compared to previous years. The overall condition of current ratio reveals the fact that the current ratio which is not stable and healthy as compared to the previous years Besley, Brigham, Scott, Eugene F. (2001). Quick ratio 2008: 670-(180+100)/620 2009: 1520-(600-120)/1900 0.63 0.42 Fab Footwear Limited quick ratio is higher in the year 2008 as compare with the year 2009. The reason behind this decline is the improper working capital management which makes the...The overall condition of current ratio reveals the fact that the current ratio which is not stable and healthy as compared to the previous years Besley, Brigham, Scott, Eugene F. (2001). Fab Footwear Limited quick ratio is higher in the year 2008 as compare with the year 2009. The reason behind this decline is the improper working capital management which makes the quick ratio less attractive in the last two years. The overall signal of Fab Footwear Limited liquidity is not good and it sends a negative signal towards the debt holders and also on the debt market. Moreover, this liquidity crunch problem creates a hurdle for the company in near future. The condition of Fab Footwear Limited working capital is fair in the year 2008 but in the year 2009 the working capital ratio is in negative zone. The reason behind this is the higher dependency on the debt which unstable the company's financial condition. The pivotal reason behind this negative impact of the working capital is the improper cash, stock and debt management Besley, Brigham, Scott, Eugene F. (2001). This ratio is also called the net profit margin. Net profit margin ratio shows the level of profits that the company is able to earn from every amount of sales.