ANALYSIS AND INTERPRETATION OF FINANCIAL REPORTS

I have examined the Profit and Loss Statements and Balance Sheets for the two-year period of 2003 to 2004. The following report will evaluate the firm’s profitability, financial stability and aspects of management efficiency as measured by various financial ratios. Comparisons will be made where possible, both within the organisation and with the current industry averages. Recommendations will also be suggested for the areas in need of concern.

FINANCIAL STABILITY
The current ratio measures the business’s financial health, indicating if the business would be able to meet its current obligations by measuring if there are enough assets to cover the liabilities. For 2003 and 2004, the business’s current ratio was 1.21:1, 0.99:1 respectively, both times above the industry average. However, although the current ratios for the two years were above the industry average, the common rule of thumb is 2:1. For 2004, the ratio was below 1:1, and can therefore the current assets ...