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  • Subject Name : Accounting and Finance

Report: Zenith Company 

The company has generated revenue of $ 1.134 Million till May 2019. However, during June, the company has generated revenue of $ 0.3 Million which is approximately one third of 11 months. It indicates high growth of revenue. Gross margin of company should be seen to determine what percentage of sales is gross profit. Increase in such ratio indicates there is better financial performance. In this company, the gross margin is 50% of net sales.

To understanding the financial position of the company, it is necessary to know the ratio analysis. The current ratio indicates whether the company is able to make short term liabilities and obligation. Increase in such ratio indicates that the company’s financial position is better.

At the same time, company should also analyse the average account receivable collection period which indicates the company’s ability to collect cash from debtors. In case the company is able to collect fast cash, it indicates that company’s is performing in efficient manner and accordingly decreases in number of days of collection period will be better for the company.

Debt to total assets ratio play important role which helps to determine what percentage of total assets is covered by debt. Increase in such ratio indicates the company is finance maximum by debt. Increase in such ratio also increase the interest cost to the company. In the given case, it can be said that the financial performance and financial position of the Zenith company is better in comparison to industry as it current ratio exceeds the current ratio as per industry. The company is also earning good gross margin. At the same time, it is observed that total asset is covered by 19% which is less in comparison to industry equivalent to 25%. It indicates that there is low risk and company is not further incurring more additional interest cost as such as industry.t is found that the current ratio of zenith is better in comparison to industry. Accordingly, it can be said that the company is able to make payment of short-term liabilities and obligation.

Accordingly, it is suggested Zenith’s that to take care of the following points so that they can maintain same level of gross profit and return to ordinary shareholders.

Such can be achieved by making maximum sales or reducing cost of goods. Cost of goods can be reduced by changing suppliers subject to further matter such long-term relationship, quality and quantity of product, credit facility granted by suppliers. At the same time, revenue can be increase by incurring advertisement expenses for more sales.

The ratio analysis has been done and comparison of zenith and industry of such ratio has been presented below:

 

 

Zennith’s

 

Industry

Gross Profit Margin

Gross Profit/ Net Sales

52%

 

70%

Return on ordinary shareholder's equity

Net Profit/ Average Equity

-25%

 

8%

Current Ratio

Current Assets/ Current Liabilities

3.33

 

2.5

Average Collection Period( in days)

(Average Account Receivable/ Total Credit Sales) * No. of days

12.55

 

8.5

Debt to total assets ratio

Debt/ Total Assets

19%

 

35%

References for Accounting Records:

https://www.accountingtools.com/articles/ratio-analysis.html

https://www.investopedia.com/terms/r/ratioanalysis.asp

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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