Accounting Assignment

Company Profitability and Solvency Status

Profitability refers to a scenario wherein company’s profits i.e. excess of its income over expense is measured while solvency refers to its ability to pay off its debts

Company’s profitability can be estimated by below ratios:-

  • Gross Profit Ratio –This ratio helps in determining the manufacturing ability of any company.

Gross Profit Ration = Gross Profit/Sales

=284589/291403

=97.7%

97.7% is very healthy gross profit ration, however, most of the goods sold were part of inventory.

  • Net Profit Ratio – Net profit ratio helps in estimating the overall profitability of a company

Net Profit Ratio = Net Profit/Sales

=135505/291403

=46.5%

46.5% net profit ratio is very sound further actual cost of goods sold can be derived post deriving of cost of goods sold from the inventory

  • Return on assets – Productivity of the asset deployed is being derived by the retun on assets ratio

Return on Assets = Net income / Total assets

= 135505/1419236

= 9.5%

  • Return on Investment – This ratio helps in determining the company’s productivity with regard to capital invested

Return on Investment=Net Income/Owner’s Equity

=135505/1100440

=12.3%

Company’s solvency can be estimated by below ratios: -

Solvency Ratio = (Net Income After Tax-Tax Income + Non-Cash Expenses)/ (Short term

Liabilities + Long Term Liabilities)

= (135505-0+3209)/(275000)

=50.4%

Debt Equity Ratio = The relationship between debts and Equity is being determined by Debt Equity Ratio

= Long term Debts/Shareholder’s Fund

=275000/1100440

=25%

Proprietary Ratio = This ratio helps is understanding proprietor’s fund ( Shareholder’s Fund or Capital Invested). Financial health of a firm is considered to be good if the ratio is high.

= Shareholder’s Fund / Net Assets

= 410000/1100440

=37.3%

Conclusion on Tharaka ChandraSena Ltd Analysis

Whadjuk_Dreaming_10504880_Tharaka_ChandraSena_Ltd is operating with very high gross profit and net profit ratio. However for a better a clear picture the cost of goods sold from the inventory also need to be considered. Furthermore, the company is also in a strong position to pay off its debts from its assets . However there still seems scope for better asset and capital deployment. Conclusively a better picture can be predicted if the company is being compared with its competitors’ and hence a benchmarking can be created for further improvement.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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