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Accounting Basics for Managers

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The ROI, which is calculated by dividing the net profit for the year with the total assets of the company, shows an increase in 2011 as compared to the previous financial year. The total assets of the company increased by 393 million during the current financial year and also the net profit of the company has also increased which has caused the return on investment ratio during the current financial year. The ROCE showed a massive increase in the financial year 2011 due to the fact that the operating in the financial year 2011 increased although no significant changes were observed in the shareholder’ s equity figure.

Through prudent resource management, the company was able to report higher ROCE in the current financial year. The current ratio is one of the significant ratios in the liquidity ratio analysis. The ratio puts into consideration the current assets and current liabilities of the company and analyses them. A current ratio greater than 1 presents the fact the company is able to meet its current liabilities and shows a stable and sound outlook.

As enumerated in the table above, the current ratio of the company has always remained greater than 1 in all of its previous two financial years. This shows that the company has enough liquid funds to discharge its current liabilities for the year. The asset test ratio, or the quick ratio, of the company utilizes the same formula as the current ratio but it does not include the inventory into consideration as inventory takes a considerably longer period of time to be converted into cash. The asset test of the company has also followed the current asset ratio format and it has shown a marginal increase as compared to the prior fiscal year.

The working capital ratio of the company is calculated by deducting the current assets from the current liabilities of the company. The working capital of the company in both of the financial year is positive which shows that the current assets of the company were greater than the current liabilities of the company.

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