The Stable Development of the Company

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Table of Contents

Depreciation Method Analysis
Standard Financial Statement
Summary
Bibliography

Depreciation Method Analysis

Analysis of the company income and the sales volumes in the context of the yearly changes and the dynamic development of the price policies is an integral part of the accounting analysis. It should be stated that the depreciation method, which will be used for analyzing the financial flow of the company.

Originally, the depreciation expenses are calculated in accordance with the following formula:

Depreciation Expense = Total Assets – Total Liabilities / life span

Net sales	3540276	3749847	33818158
Gross Profit	2361692	2511367	2209006
Assets	2848181	2567598
Liabilities	449797	543113
Long term-liabilities	552806	406172
Total liabilities	1002603	949285
Depreciasion Expense	922789	809156,5
Depreciasion Rate %	39,07%	32,22%

The method of depreciation which is used is Straight-line Depreciation. Originally, it is the simplest, and the most widely used technique in the business sphere, nevertheless, it requires stable lowering of the price, i.e. keeping the same percentage of depreciation. In the light of this perspective, it should be emphasized that the original values and reported earnings are overstated in the reports. 39,07% of a yearly depreciation is not a dangerous indicator, thus, the company may lose an excellent opportunity for further development, as the constant increase of the depreciation rate may violate the stability of the further financial development. Originally, it will be shown in the following part of the analysis. Nevertheless, there will be a strong necessity to take into consideration the fact, that the depreciation rate tends to increase, while it should stay at the same level. The following analysis will reveal the financial ratios, for the deeper insight into the business performance was possible.

Standard Financial Statement

ROE

Return on Equity = Net Income/Shareholder’s Equity

	2008	2007	2006
Net Income	272255	475697	422186
Shareholder’s equity	1845578	1618313
ROE	0,147517	0,293946

ROA

ROA = Net Income + Interest Expense – Interest Tax Savings / Average Total Assets

Net Income	272255	475697
Interest Expense	1100000	1100000
Interest Tax Savings	34085	22491
Average total assets	2848181	2567598
ROA	0,469833	0,604926

ROS

ROS = Net Income / Sales

Return on Sales
Net Income	272255	475697	422186
Net sales	3540276	3749847	33818158
ROS	0,076902	0,126858	0,012484

GMR

Quick Ratio

Quick Ratio = Cash + Marketable Securities + Accounts Receivable / Current Liabilities

Cash	522122	118044
Marketable Securities	0	530486
Accounts Receivable	53110	53801
Current Liabilities	449797	543113
Quick Ratio	1,27887	1,293158

Current Ratio

Current Ratio= Current Assets / Current Liabilities

Current Assets	1084825	1140255
Current liabilities	449797	543113
Current Ratio	2,41181	2,09948

Inventory Turnover

Inventory Turnover = Sales / Inventory

Sales	3540276	3749847
Inventory	9100000	5400000
Inventory Turnover	2,570421	1,440059

Accounts Receivable Turnover

A/C Turnover = Unpaid Credit Sales / Total Credit Sales

Originally, this information is not available in the provided case study, consequently, this ratio is impossible to calculate.

Assets Turnover

Assets Turnover = Revenue / Assets

Revenue	242456	483809
Assets	2848181	2567598
Asset Turnover	0,085127	0,188429

Summary

First, there is a strong necessity to emphasize that the calculated ratios represent the stable development of the company, and reveal accurate and proper financial management. On the one hand, the success in the matters of financial accounting and the factors, associated with depreciation is considered to be the reason for a favorable economic environment. On the other hand, the ROS ratio, as well as GMR are not satisfying, as the numbers are decreasing, and, it should be emphasized that the following tendency will probably appear to be less satisfying.

All the other ratios, which are regarded in the analysis represent the unstable development of the business performance, as the majority of the financial ratios and indicators reveal the decline of business. Assets, sales, and revenues are getting lower, while the liabilities increase. Surely, the increase in the liabilities is proportionally lower than the decrease of the assets and incomes, nevertheless, the ratios, which reveal the relations between assets and expenses reveal the dissatisfying tendency.

Moreover, it should be highlighted that the analysis of the ratios revealed the decrease in the sphere of sales, while the assets are increasing. Originally, this tendency defines that the business sector is losing its profitability points, and, to survive the company will have to extend its business performance and perform the diversification of marketing activity. Nevertheless, in the circumstances of the lowering ratios, this will be rather difficult.

The company should pay extensive attention to the issues of improving the financial aspect of the business through providing a thorough control for the other spheres of business: HR management, marketing performance, advertising, and production management. In the financial sphere, the company will have to decrease the expenses and the costs of the production for improving the financial tendencies and achieving higher rates.

Bibliography

McWatters, C. Zimmerman, J Management Accounting: Analysis and Interpretation. Prentice Hall, 2008.

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