Financial Statement Essay Example | Topics and Well Written Essays - 3000 words

Financial Statement - Essay ExampleSince it should be destination of he company to benefit its shareholders, it is called bottom-line measure of performance.Accordingly it is 22.5 % as calculated below Return on equity= Net profit after appraise/ Total equity =m 467/ 2074 = 22.5 % for 2005-06 = 392/1397 = 28.06 % for 2004-05The decline in ROE in 2005-06 is due to abnormal increase in other reserves shown under equity...This is as well as known as Return on capital employed (ROCE) and alike calculated on pretax profit.Liquidity/SolvencyLiquidity means the speed and ease with which an summation can be converted into cash. Liquidity has two dimensions. Ease of conversion versus loss of value. Any asset can be converted into cash if its legal injury is cut sufficiently. A highly liquid asset is therefore whizz that can be sold without significant loss of value. An illiquid asset is one that cannot be quickly converted into cash without a substantial price reduction. Assets are li sted on the Balance Sheet in order of liquidity meaning that the least(prenominal) liquid assets are listed first. Current assets are notes and those assets convertible into cash over the next 12 months. Bills Receivable for instance represents amounts collectible from the customers for sales already made to them. These are therefore expected to be realised in the near future. Inventory that is stock-in-trade is the least liquid of the flow rate assets. Current Ratio is one of the best known and most widely used ratios to ascertain companys solvency/liquidity. It is defined as Current Ratio = Current Assets / Current LiabilitiesCurrentAssets m 3,666/Current Liabilities m 3,432 = Current Ratio1.07 for 2005-06 2,752/ ...Assets are listed on the Balance Sheet in order of liquidity meaning that the least liquid assets are listed first. Current assets are Cash and those assets convertible into cash over the next 12 months. Bills Receivable for instance represents amounts collectible from the customers for sales already made to them. These are therefore expected to be realised in the near future. Inventory that is stock-in-trade is the least liquid of the current assets.The current ratio of 1.07 indicates that company is efficient enough to use all its current assets without keeping them surplus and idle. It has also shown remarkable improvement from the last years negative current ratio of 0.84.Quick ratio is calculated ignoring the value of inventory include in current assets for its obvious shortcomings of the least liquid of all current assets besides possible overvaluation and inclusion of damaged, obsolete and lost stocks. It can also include over purchased and slow moving items. These will impede liquidity. Quick Ratio or Acid -Test ratio is so named to indicate the current assets sans inventorys speedy liquidity. BA has no stock in trade as mentioned above except for expendable spares and other inventories valued m 83 since it is a answer industry.