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Financial Stability

Jitterbug Pty Ltd managed to improve the debt ratio, equity ratio, and capitalization ratios as total assets decreased by 2.1%, and total liabilities increased by 15% in 2010. The higher debt ratio is favourable as it means that the business is unable to repay its debts compare to 2009.

The equity ratio is higher than the industry average of 65% stating that Jitterbug Pty Ltd is in a better position compared to other businesses in the same industry. These ratio indicates that the business has become unstable compared with the previous year where the business was doing well. The owner haven’t responded correctly the sales has decreased and which result in decreased the value of assets, increase liabilities, and assisted in decreasing equity making the business financially insecure and more risky to be liquidate.

The times interest earned ratio has presented an increasing trend over the 3 years with 16.3 times in 2010 compared to 18.5 times and 11.6 times in 2009 and 2008 individually. This is due to a 4% decrease in interest expense in 2009, and 14.3% in 2010. A decrease in borrowings and having no non-current liabilities is also responsible for the decrease in the intereThe return on shareholders’ equity and the earnings per share also declined from 2008 to 2009 and then illustrated an improvement in 2020. The decreased in return in 2009 is as the result of declined in revenue. This is evident because the operating profit after tax decreased from $81000 in 2008 to $71000 in 2009. Therefore, it can be argued that the cause of the decline in revenue is due to the existence of a new competitor nearby. In addition, the global financial crisis that had unfavorable effects on economic activities as a whole during the years is responsible for the diminishing in revenues and low returns. However, by 2010 an appreciated improvement was made. Sales increased by 1.64% also profit after tax increased from $71000 in 2009 to $78000 in 2010 which...