D2
Ratios are calculated to show the organization what financial state they are in and
give them a better understanding of how well the company is performing financially.
Therefore businesses like the way I am doing is Mainwaring engineering, and they
carried out a ratio analysis on a regular basis to monitor the state of the business,
however ratios are not very accurate as they only give an estimate or a predicted
figure so the business has to be careful and not make major decision based on
ratios. In this report I'll evaluate the adequacy of accounting ratios are in terms of
monitoring the state of the business, in this case Mainwaring engineering.
Mainwaring Mainwaring Industry averages
engineering year engineering year for year ending
ending March 2011 ending March 2012 March 2012
Return on capital 7.8% 69/850x100 = 8.1 8%
employed
Gross profit 48% 717/1,628X100 = 40%
percentage 44
Net profit 76% 69/1,628X100 = 75%
percentage 4.2
Stock turnover 92 days 237/911X100 = 95 95 days
Debtor collection 58 days 269/1,628X365 = 55 days
period 60.3
Creditor payment 60 days 212/1190X365 = 57 days
period 65
Current ratio 2.6:1 507/212 = 2.4:1 2.5:1
Acid test 2.5:1 507-237/212 = 1.4:1
1.3:1
Liquidity ratios
The current ratio for Mainwaring engineering in 2012 was 2.4:1, last year it was
2.6:1. Last year the current ratio was good because it is high therefore they had
more chance to save the money, and pay off the debts, but as the year went passed
the current ratio decreased to 2.4:1 and the industry averaged it at 2.5:1 and this is
bad because it went below the business average and this means that the business
will have to sell their liabilities to cover up the debt. In order for the company to
avoid this problem such as not being able to cover short term debt, the company
should reserve some money to be able to pay off the liabilities. The strength of this
current ratio is that in 2011 the result was 2.6:1 which meant that the company had
more money to pay off to the debts, instead of paying it off with the liabilities;
furthermore it has surpassed the industry averages. The other strength is that the
current ratio data will able to show the business if they are able to pay off the short
Ratios are calculated to show the organization what financial state they are in and
give them a better understanding of how well the company is performing financially.
Therefore businesses like the way I am doing is Mainwaring engineering, and they
carried out a ratio analysis on a regular basis to monitor the state of the business,
however ratios are not very accurate as they only give an estimate or a predicted
figure so the business has to be careful and not make major decision based on
ratios. In this report I'll evaluate the adequacy of accounting ratios are in terms of
monitoring the state of the business, in this case Mainwaring engineering.
Mainwaring Mainwaring Industry averages
engineering year engineering year for year ending
ending March 2011 ending March 2012 March 2012
Return on capital 7.8% 69/850x100 = 8.1 8%
employed
Gross profit 48% 717/1,628X100 = 40%
percentage 44
Net profit 76% 69/1,628X100 = 75%
percentage 4.2
Stock turnover 92 days 237/911X100 = 95 95 days
Debtor collection 58 days 269/1,628X365 = 55 days
period 60.3
Creditor payment 60 days 212/1190X365 = 57 days
period 65
Current ratio 2.6:1 507/212 = 2.4:1 2.5:1
Acid test 2.5:1 507-237/212 = 1.4:1
1.3:1
Liquidity ratios
The current ratio for Mainwaring engineering in 2012 was 2.4:1, last year it was
2.6:1. Last year the current ratio was good because it is high therefore they had
more chance to save the money, and pay off the debts, but as the year went passed
the current ratio decreased to 2.4:1 and the industry averaged it at 2.5:1 and this is
bad because it went below the business average and this means that the business
will have to sell their liabilities to cover up the debt. In order for the company to
avoid this problem such as not being able to cover short term debt, the company
should reserve some money to be able to pay off the liabilities. The strength of this
current ratio is that in 2011 the result was 2.6:1 which meant that the company had
more money to pay off to the debts, instead of paying it off with the liabilities;
furthermore it has surpassed the industry averages. The other strength is that the
current ratio data will able to show the business if they are able to pay off the short
