Ratio spreadsheet East lawn

Profitability

Gross profit 430 x`100 =17.2% 430 x 100=26.8%

2500 1600

Net profit 166 x100=6.6% 170 x100=10.6%

2500 1600

Assets Turnover net assets:158+399-189=368 Net Assets:62+199-38=223

2500 =6.79% 1600=7.17%

368 233

Return on capital employed 166 x 100=45.1% 170 x100=76.23%

368 223

Liquidity

Current ratio 399 =2.1 times 199 =5.2 times

189 38

Quick ratio 399-220=0.94 times 199-160=1.02 times

189 38

Working capital ratio

Stock turnover 220 x365=38.8 days 160 x 365=49.9 days

2070 1170

Receivable collection period 104 x 365=15.18 days 29 x 365 = 6.6 days

2500 1600

Payable payment period 189 x 365 = 32.85 days 38 x 365=11.36day

2100 1220

Ratio Analysis:
Ratio analysis is a way to assess a company’s financial performance by comparing different financial
ratio. It involves analysing relationship between different financial figures, such as revenues,
expanses, assets, and liabilities, to gain insights into the company’s strengths, weaknesses, and
overall financial health. By examining ratio like profitability ratio, liquidity ratio, efficiency, analysts
can evaluate various aspects of company’s operations and make informed decisions. It is used widely
by the business management, investors, creditors, and other stakeholder to assess and compare the
performance of the business.
Comparison and critical evaluation of the Easy lawn Ltd and
Spreadsheet Ltd
Profitability ratio:

Profitability ratios are used to assess a company’s ability to generate profits. Some common
profitability ratio includes gross profit margin, operating profit margin, and net profit margin. These
ratios help determine how efficient a company is using its resources to generate profits.

Gross profit ratio:

Gross profit refers to the amount of money a company earns from its sales after deducting the direct
costs associated with producing or delivering the goods or services. It also shows how the business is
managing its cost of sales.

Gross profit of spreadsheet Ltd is 17.20% while gross profit margin of easy lawn ltd is 26.88%. this
clearly indicates the Easy lawn is performing much better than spreadsheet ltd. Although Easy lawn
has less sales ($1,600,000) compared to spreadsheet ltd but its managing cost of sales very well
while 1,170 (73%) of total sales values while Easy lawn has ($2,070,000) cost of sales which is almost
83% of sales values. Easy lawn ltd might be getting discount on purchase which is making its cost of
sales less and uplifting gross profit.

Net profit ratio:

The net profit ratio is an important financial indicator that show how efficiently a company is
generating profit from its operations. A higher net profit ratio generally indicates better financial
performance.

Spreadsheet has net profit ratio of 6.64% while Easy lawn has net ratio of 10.6%. Again, Easy lawn is
doing better in this area as they are concerting more gross profit into net profit. Both businesses do
not have significant difference in operating expenses (only $4,000) but still Easy lawn has better net
profit margin.

Return on capital employed:

Return on capital employed is a financial ratio that measures the profitability and efficiency of a
company’s capital investment. It shows how effectively a company is utilizing its capital to generate
profits.

Spreadsheet has return on capital employed of 45.1% while Easy lawn has its ratio at 76.23% which
is very high number. This shows that Easy lawn ltd is using its financial resources more efficiently in
comparison to spreadsheet.

Efficiency ratio:

Efficiency ratio are financial ratios that measure how effectively a company is utilizing its resources
to generate revenue and manage its assets. These ratio help assess the company’s operational
efficiency and productivity.

Trade receivable days:

Trade receivable days refers to the average number of days it takes for a company to collect
payment from its customers for goods or services sold on credit. It helps measure the efficiency of a
company’s credit management and the speed at which it collects its accounts receivable.
Spreadsheet ltd receive money in 15.18 days while Easy lawn get the money in 6.6 days which
indicates the Easy lawn ltd has better credit control management.

Trade payable days:

Trade payable days is a financial matric that measures the average number of days it takes for a
company to pay its trade payables, such as suppliers or vendors. It is also known as the accounts
payable turnover period.

Spreadsheet is paying in 32.85 days while Easy lawn is making that payment in 11.36 days. If this is
industry average than its good for easy lawn but if they can hold money for some more time that will
be good.

Stock turnover days:

Stock turnover days is a financial measure that shows how many days it takes for a company to sell
its inventory. It tells us how efficiently a company manages its inventory and how quickly it can turn
it into sales. A lower stock turnover days value is better because it means the company is selling its
inventory faster.

Stock days are 38.8 and 49.9 days for spreadsheet and Easy lawn. Spreadsheet is selling quickly in
comparison to Easy lawn ltd as that’s also indicated by its higher sales.

Liquidity ratio:

Liquidity ratio is a financial matric which can determine a company’s ability to pay off its short-term
liabilities. If the value of the ratio is higher, than the margin of safety that the company possesses to
cover the debts is also bigger. It is also linked with business cash position.

Current ratio:

This ratio shows business ability to pay its short-term liabilities if those become due. It tells investors
and analysts how a company can maximize the current assets on its balance sheet to satisfy its
current debts and other payables.

Current ratio of spreadsheet ltd and Easy lawn ltd are 2.1 times and 5.2 times respectively.in this
case, if spreadsheet ltd has a current ratio of 2.1 it means that its current assets are 2.1 times its
current liabilities. Similarly, if easy lawn has current ratio 5.2 times it means its current assets are 5.2
time its current liabilities. A higher current ratio generally indicates better short-term financial
health.

Quick (acid test) ratio:

The quick ratio is a measure of a company’s liquidity that excludes inventory from current assets.
This is because inventory might not be easily converted into cash in certain situations. For
spreadsheet ltd, the quick ratio is 0.94 and for Easy lawn ltd, it is 1.02. These ratios suggest that both
businesses have a significant amount of inventory. While holding inventory is necessary for some
industries, it can also lead to higher holding and storage costs.

Conclusion and recommendation:

After analysing the profitability and efficiency, it appears that Easy lawn is doing better with higher
profit margins and return on capital employed. This can attract more investors and contribute to the
business growth. Spread light also has good efficiency ratios, showing effective credit control
management that Easy lawn can learn from.

Recommendations:
Spread- light Ltd:
Profitability ratio:

Spread-light ltd can definitely increase its gross profit margin by either boosting sales or reducing the
cost of sales. They can attract more customers through marketing and promotions, and also explore
options for purchasing materials at a lower cost without compromising quality. Buying in bulk or
taking advantages of cash discounts can also help. Cash discounts can also help businesses improve
cash flow, reduce accounts receivable, and incentivize prompt payment from customers. cash
discounts can also be obtained by making the payments earlier.

Efficiency ratio:

To reduce the debtor’s collection period of around 20 days, spread-light ltd can implement effective
credit checks before granting credit to customers. Its also important to proactively follow up on
delayed payments to ensure timely payments.

Easy lawn ltd:

Delaying payment to suppliers, if financially feasible, as 11 days look earlier from industry point of
view compared to other business. This can indeed have a positive impact on the businesses working
capital ratio. However, it is important to consider the potential loss of discounts or strains on the
relationship with suppliers before making such a decision.

Liquidity ratio:

Both current and quick ratios being very high so the current assets like closing stock and extra cash
can be devoted somewhere for profits. By doing so, not only can easy lawn improve their profits, but
they may also be able to reduce their operating expenses overall.