Analysis of Financial Statements and the Key Financial Ratios.

Financial Management Module Assignment

Analysis of Financial Statements and the Key Financial Ratios.

Gerdall Pty Ltd

1. Return on Assets. Earnings before Interest and Tax (EBIT)

Total Assets

2011 2010 2009

EBIT 81 600 584

Total Assets 7236 6487 6812

Return on Assets 1.12% 9.25% 8.57%

(Industry Standard 12%)

Analysis of Results

On a year by year breakdown, sales increased between 2009 and 2010 but fell to pre 2009 figures in 2011. Depreciation costs increased in 2010 compared to 2009 which is explainable in increase in non – current plant and equipment on the balance sheet. Lease rentals slightly decreased in 2010 potentially in-line with investment in additional plant and equipment in the same year. A cost of goods sold in 2010 increased but was offset by increased sales in same year.

2011 shows a marked decrease in sales whilst maintaining reduced COGS compared to 2010 and similar to 2009. This variance also appears in an inventory which has increased $616,000 against 2010 figures. Wages growth between 2010 and 2011 indicated normal cost of living increases and appears to indicate no reduction in employee numbers given decreased sales which further supports the decrease in ROA in 2011. There is also a decline in plant and equipment value in 2011 against previous year. The business has also reduced substantially, the amount of funds in investments in 2011.

Reviewing the trends, the decline in 2011 ROA is driven by a substantially reduced EBIT primarily as a result of lower sales numbers verses an increased total asset pool made up of increased current assets which was a result of an increase in debtors and a decrease in non-current assets primarily driven by a decrease in...