Financial analysis is the method used to determine the success or weakness of a particular business; This will generally help the management in improving the performance of the business. Considering the financial position of pet food, Its profitability can be determined by determining the return on investment (ROI) which is calculated as follows; Net income divide by Total Assets i.e. 10590/189790 giving a return of only 5%.This clearly indicates that more is put in while less is received. This calls for the management to generate adequate operating profit from the respective Assets so as to improve the performance of the company.
Debt to Equity ratio is another thing to consider before making appropriate improvement, looking at Pet Food scenario which is 28000/160590 giving 17% this percentage is quite recommendable as it shows that this company does not use more of debts to finance its operation, as compared to an instance where it would be worse if the percentage was high. This can be eliminated by the manager using cash generated within the business to invest
Into profitable project which have guaranteed returns at the end of the period.
The current ratio for this company is badly off since it more than one which is not recommended, The formula for determining the ratio is to divide Current Assets by Current liabilities i.e. 91522/29200 giving us 3.1 showing that company is unable to meet its financial obligation whenever they fall due for payment.
The manager should consider negotiating the Credit period to be extended or more than 30days so that there is sufficient time to invest the money before payment time falls due.
On expenses there is an immediate need to reduce or totally eliminate the unnecessary expenses which escalates cost, thus the manager of pet food should consider reducing the amount paid out for such expense. These are the main things that should be considered to improve the profitability and general performance of this business as a whole.
Weygandt, J., Kimmel, P., & Kieso, D. (2008). Financial accounting (6th Ed.). Hoboken, NJ:
Deegan, C (2010) Australian Financial Accounting 6th ed, McGraw-Hill, North Ryde, NSW