Evaluation Of Financial Performance Of Sport Station: Analysis And Recommendations

Discussion

Sport station is a small business in Australia that deals in sports equipment. It has the business of buying and selling the equipment and hence it act as intermediary between su8ppliervand final consumers. In the report, evaluation of financial performance of Sport station has been done. Various financial activities have been analyzed in reference to their assessment using different statements. Report has considered financial statement of sport station for the time period of October to first week of November. Analyses have been done by application of MYOB software that has assisted user in translating data from company’s various financial statements (Curtis, 2015). This software is useful for small scale enterprise as it emphasises on process of business and work flow. The various types of financial statements that have been used in analysis the financial performance of sport station are balance sheet, Income statement, and profit and loss statement, summary of list of items of inventories, reconciliation report, session report, aged payables and aged receivables.

Evaluation and analysis of Sport station financial performance:

Analysis of financial performance of Sport station has been done using quantitative tool and this involves analysing of various ratios. Ratio analysis is an important tool for the organization as well as investors to judge financial position. Several ratios have been calculated such as Profitability ratio, leverage ratio and liquidity ratio. Each ratio has its own relevance and significance (Brown, 2016). For computation of mentioned ratios, figures and facts from different financial statement are considered to be of crucial importance as they form the basis of calculation. Growth, sustainability position and vulnerability of organization is demonstrated using tool of ratio analysis.

Profitability ratio helps in determining the profitability position of company by evaluating the profits generated. It takes into account computation of four different ratios. This include gross profit margin, profit margin, return on equity and return on assets. The time duration for which the ratios have been calculated ranges from October 2012 to November first week. Following table depicts the four computed ratios:

Table 1:

Source: created by author

Gross profit margin:

It is depicted from graph that gross profit margin has reduced in first week of November. Figure reported at 55.206% in October compared to 49.25% in November first week. The reason is because of continued expenses incurred by organization.

Analysis of profitability position

Gross profit margin:

Source: created by author

Profit margin:

There has been increase in loss in November first week. Loss stood at 355.96% when compared to figure in October month that stood at 2.1%. This is so because there has been loss arising from undertaking business activities.

Profit margin:

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Return on equity:

Return on equity has fallen in first week on November. Figure stood at 0.66 compared to 18.63 in October month. This indicates that earning of company has reduced.

Return on equity:

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Return on assets:

ROA reported to be at .248 in November first week when compared with October value that stood at 6.92. It shows that return on assets have fallen in November and indicates that assets are not efficiently utilized for generating revenue.

Return on assets:

Source: created by author

Liquidity ratio of sport station marks relevant changes in the ratio and shows changes in their liquidity position. It shows the availability of liquid assets for meeting the obligations of company. In this regard, five ratios have been computed and they comprise of current ratio, receivable ratio, quick ratio, and average collection period and inventory ratio. Following table shows the ratios value.

Table 2:

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From the graph, it is clear that quick ratio has increased in November fist week. October value recorded at 23.614 as against November value at 3.73. This shows that current assets are easily convertible into cash and at faster pace.

Quick ratio:

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Current ratio:

Current ratio of sport station has increased in November fist week. For October month, ratio stood at 4.33 when compared to November value at 5.27. An increase in this ratio indicates that current assets are utilized for meeting the shot-term liabilities.

Current ratio:

Source: created by author

Receivable ratio:

Receivable ratio has increased and this shows that inventories are convertible into sale at quicker pace. It shows that sport station has followed tighter credit policies in November. Ratio in November first week stood at 1.02 compared to 1.008 in October.

Analysis of liquidity position

Receivable ratio:

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Average collection period:

Average collection period has reduced in November first week. Collection period stood at 362 days as against 355 days in month of November. It shows that time for collecting debtors has reduced that is a good sign for company.

Average collection period:

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Inventory turnover ratio:

Inventory turnover has reduced in November month at value is recorded at .102 compared to 2.58 in month of October. This shows that conversion of inventories into sales has reduced as against previous month.

Inventory turnover ratio:

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For evaluation of financial stability of Sport station, three ratios have been computed. These ratios involve equity ratio, debt ratio and leverage ratio. Values of ratios are depicted in following table.

Table 3:

Source: created by author

Equity ratio:

Equity ratio has remained at par in both the month. However, ratio has fallen in first week of November. Creditors and loan provides will be considering as vulnerable in making future lo9an as there is a possibility of making default on part of company.

Debt ratio:

There has been reduction in debt ratio in November first week. Value stood at .633 in November when compared to value in October that reported to be at .616. This indicates that proportion of debt in company’s capital structure is more than equity.

Debt burden of company is measured in relation to its equity capital using this ratio. There has been an increase in ratio in November. Ratio figure stood at 1.706 in November when compared to 1.666 in October. It demonstrates that company has been buying more loan rather than issuing equity for financing their capital.

Organization has been efficient in utilizing their current assets as evident from quick and current ratio computation. Average collection period is insignificantly long and Sport station need to reduce the collection period for avoiding bad debts. Cash sales should be increased instead of selling good on creditors to suppliers. Customers should be availed several discounting facilities for making quick sales. There have been reduction of return on assets and it is required on part of company to utilize their assets. Lastly, leverage ratio of company has witnessed an increment as depicted from figures. Equity financing should be used for financing the capital rather than relying on debt.

Conclusion:

From the above analysis, it is evident that Sport station has incurred net loss in month of October as well as November. Hence, sport station meds to adopt some measures for reducing the incurred cost and expenses for overcoming net loss. They also need to reliability on loan and should try to reduce the borrowing and issue equity shares for the purpose of financing capital. 

Reference and Bibliography:

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