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Report On The Financial Performance Of PGT Systems

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Question:

Discuss about the Financial Performance of PGT Systems.
 
 

Answer:

Introduction

It has been trend now-a-days to measure the company performance using the financial accounting tools like trend analysis and ratio analysis. It helps the management to review all the accounting transactions carried out for the period and helps them to improve the performance. In this report financial health of PGT Systems has been evaluated using the financial ratios as the accounting tools to evaluate the financial performance for last six months of working during the year 2016.

Evaluation and Comparison of Ratios

Details of Ratio Calculations

Ratio Analysis pf PGT Systems

Category of Ratios

Ratios

Formula

2016

 

Profitability

Return on Equity

Net Profit/Equity

24.28%

 

 

Return on assets

Net Profit/ Assets

8.50%

 

 

Net Margin

Net profit/Revenue

8.55%

 

Asset Efficiency

Asset Turnover

Sales/Assets

0.99

times

 

Days debtor

365/Times Debtor turnover

2.39

days

 

Times Debtor Turnover

Sales/Accounts Receivables

152.56

times

Liquidity

Current Ratio

Current Assets/Current Liabilities

3.21

times

 

Quick Ratio

Quick Assets/Current Liabilities

1.86

times

Capital Structure

Debt to Equity Ratio

Debt/Equity

1.61

times

 

Debt Ratio

Debt/Total Assets

0.57

times

 

Interest Coverage Ratio

Net Profit/Interest

4.91

times

Profitability

  • Return on Equity: This ratio shows the profit earned on the total equity invested by the owner of the company. It is calculated for the amount last calculated for the end of the period in the balance sheet. Return on equity of PGT System for year 2016 was 24.28% and it is quite impressive on looking at the initial 6 months of working (Brigham and Ehrhardt, 2011).
  • Return on Assets: Return on asset shows the profit earned by the company using the assets implemented by the company. Company has invested enough funds in the assets of the company and it has provided 8.50% return on assets for the period ended December, 2016.

Liquidity

  • Current ratio: This ratio reflects the short term liquidity position of the company as it measures level of current assets as against the current liabilities. Current ratio of the company was 3.21 times that indicates that company has enough assets to meet its short term liabilities.
  • Quick Ratio: This ratio measures the same liquidity position as current ratio but only difference is that this ratio does not considers inventory and prepaid expenses for the calculation purpose. Quick ratio of the company was 1.86 times.

Capital Structure

  • Debt to Equity Ratio: This ratio tells leverage position of the company and it is calculated as debt divided by the equity. The debt equity ratio of the company is 1.61 times that indicates presence of more debt than the equity.
  • Debt Ratio: This ratio tells level of assets financed from the debt capital. It is calculated as debt divided by the total assets (Buckle, Buckle and Thompson, 2004).

Asset Efficiency ratios

  • Asset turnover ratio: This ratio shows times the sales earned on the total assets invested by the company. Company has earned almost same amount of sales as the assets invested.

Limitations of Analysis

Ratio analysis has many advantages together with some limitations. Main limitation of the ratio analysis is that it is based on the financial information provided by the management. It does consider the variations in economic downturn and inflation (Bull, 2007).

Conclusion

Lastly it can be said that overall financial performance of the company was strong and it is highly advised to the company to focus on the reduction of advertising expenses.

 

References

Brigham, E. F. and Ehrhardt, M. C. 2011. Financial Management: Theory and Practice. Mason: Cengage Learning.

Buckle, M.J., Buckle, M. and Thompson, J. 2004 . The UK Financial System. 4th ed. New York: Manchester University Press.

Bull, R. 2007. Financial Ratios: How to use financial ratios to maximise value and success for your business'. UK: Elsevier.

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