PERFORMANCE ANALYSIS

Performance Analysis of Sparklin Automotive Company

Performance Analysis of Sparklin Automotive Company

Introduction

The analysis of financial performance is crucial as it helps the company in evaluating the financial standing in certain time period which also reflects the future trends of company. In this study, past performance of Sparklin Automotive Company (SAC) is taken into consideration which includes 2010 and 2011, so that the financial position or condition of SAC can be measured. This analysis also guides in improving the profits and the liquidity position of the company so that the immediate needs of the business can be satisfied. For that reason, analysis of the financial ratios is an important aspect of measuring the financial position of Sparklin Automotive Company.

Calculation Of Ratios For Sparklin Automotive Company

Profitability Ratios

2010

2011

Gross Margin %

=

Gross Profit X 100

=

76,250

=

49.2 %

=

68,380

=

40.7 %

Revenue

155,000

168,000

Net Profit Margin %

=

Net Income X 100

=

31,670

=

20.4 %

=

29,485

=

17.6 %

Revenue

155,000

168,000

ROE % (Net)

=

Net Income X 100

=

31,670

=

29.0 %

=

29,485

=

27 %

Stockholders' Equity

109,200

109,200

ROA % (Net)

=

Net Income X 100

=

31,670

=

20 %

=

29,485

=

18.7 %

Total Assets

158,300

157,350

Liquidity Ratios

2010

2011

Current Ratio

=

Current Assets

=

72,300

=

1.5

=

67,350

=

1.4

Current Liabilities

49,000

48,000

Quick Ratio

=

Quick Assets

=

46,940

=

1.0

=

30,990

=

0.6

Current Liabilities

49,000

48,000

Debt Management

2010

2011

Total Debt to Equity

=

Total Debt & Leases

=

49,100

=

0.45

=

48,150

=

0.44

Shareholders' Equity

109200

109,200

Efficiency Ratios

2010

2011

Receivables Turnover

=

Revenue

=

155,000

=

18.2

=

168,000

=

18.2

Accounts Receivable

8,500

9,250

Inventory Turnover

=

Cost of Goods Sold

=

78,750

=

3.1

=

99,620

=

2.7

Inventory

25360

36360

Analysis of Sparklin Automotive Company

Profitability Ratios

The financial performance of Sparklin Automotive Company in terms of profitability is not adequate as the past trends of the SAC that is from 2010 to 2011 indicates that the profits of company is decreased which can verified from the assessment of the profitability ratios that include gross profit margin, net profit margin, return on equity and return on assets. In this context, the gross profit margin of SAC is decreased from 49.2% to 40.7% during the period under consideration, which is not a positive indication for the company; similarly, the net profit margin is also decreased. Furthermore, the return on assets of Sparklin Automotive Company from 2010 to 2011 is indicating that structure of profitability of the SAC is decreased from 20% to 18.7%; which shows that the ineffective management of company in utilizing its assets to making profits. For that reason, the overall performance of the SAC is not encouraging for the investors.

Liquidity Ratios

The liquidity position of the company is reflected through the current ratio and quick ratio, which indicates that it has declined from 2010 to 2011, which reflects that the liquidity structure of the Sparklin Automotive Company is not satisfying. The financial performance of the SAC shows that the current ratio is decreased from 1.5 to 1.4 from 2010 to 2011 respectively; however, ...