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The Financial Statement Analysis Of Tick Tock

1311 words - 6 pages

The report focus on the financial statement analysis of Tick-Tock during 2005 to 2007.And at the same time provides the recommendation whether to purchase Tick-Tock for $275,000 or continue looking for another business. This financial statement has been divided into three segments: profitability, liquidity and financial stability .The first part is profitability which focuses on different aspect of return on investment & evaluating operating performance ratios. And the second segment concrete on the liquidity, as this ratio measures a company's ability to pay short-term obligations, the current ratio of 2007 shows that the firm has a good short-term financial strength to meet its current ...view middle of the document...

So according to these ratios Tick-Tock is making a decreasing and not satisfactory profit during 2005 to 2007.

Liquidity
The current ratio of Tick Tock Pty Ltd from 18.83 in 2005 decrease to 7.41 in 2006 and then decline to 4.81 in 2007. It indicates this company has the ability to meet its short-term debt from its current. Maybe due to this company had many assents on hand, they used the assets to do some investments and other stuff so that reduced the assets and they wanted to make current assents more efficient and make more money. In terms of quick ratio which is a more rigorous measure of short-term liquidity. In 2005 and 2006, the quick ratio was 2.33 and 1.24, they mean the company can use the cash and receivable cover its current liabilities. In 2007, however, it decreased to below one; it was 0.85 which illustrate that the company has not a good ability to pay off the immediate demands of creditors not by the sales of inventory, but using its cash and receivable. From the figures, we can see that as a business company, the current ratio is relatively satisfying and the company has a relatively ability to meet current obligation because a little weak in the situation in quick ratio of 2007. Following by debtor turnover and collection period, the dates show the good position, the net sales income always much more than average receivables balance despite they show the decrease tendency from 67.5 times in 2005 to 54.8 times in 2007, and the collection period is all not over one week, the company has not some problems with excessive of receivables balance. For its inventory turnover ratio, these 3 years are all similar which from 3.59 times in 2005 and 2006 little dropped to 3.52 times in 2007. It indicates that the sales of the firm always keep stable. All there liquidity ratio show us that this company has ability to its obligations and daily operation is in a good situation.

Solvency
We will focus on solvency ratios. The debt ratio has increased from 28.02% in 2005 to 39.57% in 2007. It means during these years, the company used more liability in its operation. So the percentage of assets which provided by creditors became higher and increase the burden of company. But everything has two aspects, if this company can controlled this in a reasonable situation; it is help to company, the decrease position on equity ratio, from 71.98% in 2005 to 60.43% in 2007. This ratio examines the relationship between total equity and total assets, the higher the equity ratio, the greater the asset protection to creditors. In this case, there does existence the risk of the business (Hogget, J, Edwards, L, & Medlin, J, 2006, p, 1068). And the capitalization ratio is similar equity ratio which is also providing useful information...

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