Analysis of Financial Position of Berry’s Bug
The purpose it to analyze financial position of the company for the year ended 2008 as compared to year ended 2007. The techniques of horizontal, vertical and ratio analysis have been used for this purpose.
The liquidity ratios shows that the company ability to pay off its current liabilities in the year 2008 is better than 2007. As current ratio increased by 2.42 and acid test ratio increased by 2.31 times in 2008 as compared to 2007. However, the account receivable turnover and inventory turnover ratios went down in 2008 as compared to 2007. They went down by 3.71 and 6.7 times respectively, in the year 2008 as compared to 2007. The account receivable turnover went down due to decline in revenues and increase in account receivable in 2008; it shows that the company generated fewer revenues in 2008 against its account receivable in 2008 as compared to 2007. The inventory turnover ratio was also down due to no change in inventory but the revenues went down. All profitability ratios are showing decline in the year 2008 as compared to 2007. The assets turnover went down by 1.92 times, the profit margin went down by 4.58%, the return on assets turnover went down by 46.57% and return on shareholders’ equity went down by 67.09%, they all went down due to decline in revenues in 2008 as compared to 2007. The solvency ratio has shown improvement in the year 2008 as it down to 15.88% from 24.47% in 2007, which shows a decline of 8.59%. It shows that company has less relied on debt financing against its total assets in 2008 as compared to 2007.
The net income in the year 2008 went down by around 35.87%; it was due to decline in revenues by 16.53%. The change in direct expenses is directly related to revenues, and it is almost showing the same decline of 16.34% in 2008 as compared to 2007, it shows that most of the direct expenses are variable. But the indirect...