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# Discuss the trend for each ratio and what it tells you about

### Resolved Question:

Discuss the trend for each ratio and what it tells you about the organization’s financial health.

Below are the ratios that I was able to figure out. But I have no ideas what these numbers mean about the organizations health. Can you please answer the above question.

Ratio
2012 2011

Current Ratio
21296/19002 = 1.12:1 17490/14896 = 1.17:1

Return on Equity
(39000)/79745= .49% 631000/7974500 = 7.91%

Days Receviable 61093/3364=18.16 48077/2571=18.70

365/18.16 = 20.1 365/18.70 = 19.52

Debt Ratio
24363/32555 = 75% 17521/25278 = 69%
Submitted: 2 months ago.
Category: Single Problem
Expert:  F. Naz replied 2 months ago.

The current ratio has declined in 2012 as compared to 2011 by .05, which is not very significant. It shows that company has fewer current assets in 2012 as compared to 2011 to meet each dollar of current liabilities.

The return on equity was positive in 2011, while it turned into negative in 2012. It shows that company has not earned any profit in 2012. Therefore the return on equity declined from 7.91% to negative 0.49%/

The day’s receivable is around 20 days in both years, therefore there is no significant change, it means that company has been collecting its account receivable as usual, and there is no big change in collection of account receivables.

The increase in debt ratio by around 6% shows that company is more relying on debt financing rather than equity financing, which will increase the financial leverage of the company

If we look at the overall financial position of the company from these four ratios, it is not very good as the company has not earned enough to shows profit and the company financial leverage is increasing, the more debt might have increased the interest expense, which might have resulted in loss in 2012 as compared to 2011.

F. Naz, B.Com
Category: Single Problem
Satisfied Customers: 3846
Experience: Have completed B.Com and CA Finalist

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