Comparison of ratios over a two-year period Research Paper

Comparison of ratios over a two-year period - Research Paper Example Besides, financial ratio analysis can also be used to assess the performance of different departments and managers and how their overall performance may have an impact on the performance of the whole firm. Sparklin Automotive Company is in business since 1990 and is supplying different automotive related parts across the whole country. In order to better assess its performance for the year 2005 and 2006, a comprehensive ratio analysis is important. This will provide a critical insight into areas such as liquidity management, overall asset management, the nature and extent of firm’s debt as well as assessing the profitability during these two years. Ratio Analysis Explanation Ratio analysis is the process of calculation and comparing the ratios which have been extracted from the different financial statements. By forming the historical trends, ratio analysis can actually provide an insight into the performance as well as charm in the company to perform in the long run based on the historical data. Ratio analysis is also important from the perspective of assessing the performance of the managers and understanding as to how the organization is performing. By computing financial ratios, a firm not only compares its performance with the competitors but also get an insight into its own historical performance. Ratio analysis therefore can be used for two different purposes or in two different manners i.e. making comparisons through trend analysis and comparing the ratios with the competitors. When financial ratio analysis is used for the purpose of trend analysis, a firm or a manager can actually get an insight into how the trends in different ratios are pointing towards the performance of the firm. For example, if a manager wants to assess as to how the overall inventory has been managed through out the year, she can compute the inventory turnover ratio and days in inventory to get an insight into how the inventory of the firm has been maintained and how sales have been generated. Ratio analysis therefore provides an ability to perform objective analysis of the performance of the firm. (Bull, 2007) Ratio analysis can either be used by the firm for its own evaluation purposes so that managers can assess what is required to be done in order to improve different areas lacking in achieving the targets. Secondly, ratio analysis can also be used by the investors to not only assess the historical performance of the firm but based on this assessment make forecasts as to how the firm may perform in future. Ratio Calculation Ratio Formula 2005 2006 Current Ratio Current Assets /Current Liabilities 1.475:1 1.403:1 Debt to Equity Ratio Total Liabilities / Total Equity 0.449:0.551 0.440 : 0.56 Inventory Turnover Sales / Inventory 6.11 times 4.620 Times Receivables Turnover Sales / Receivables 18.24 times 18.16 times Gross Margin Gross Profit / Sales 49.19% 40.70% Evaluation of the Ratios Current Ratio Current ratio is one of the basic indicators for assessing the liquidity position of the firm and indicates as to whether the firm has the required liquid assets to pay off its immediate liabilities. A current ratio of higher than 1 is considered as acceptable because for ever $1 of current liabilities firm has more than $1 of current assets to settle these

Economics of Development Essay Example | Topics and Well Written Essays - 3000 words

Economics of Development - Essay Example If figures are presented, their source should be included and again, a good essay will identify their value to the argument. Having a healthy, prosperous and peaceful phase of a country stands to distinguish itself as a developed country. Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants. From a policy perspective, economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and retaining jobs and supporting or growing incomes and the tax base. The term "economic growth" refers to the growth of a specific measure such as real national income, gross domestic product, or per capita income. National income or product is commonly expressed in terms of a measure of the aggregate value-added output of the domestic economy called gross domestic product (GDP). When the GDP of a nation rises, economists refer to it as economic growth. This economic development effect the individual in the mass leading to a phase either strong or weak hold of purchase power. The ter m "economic development," on the other hand, implies much more. It typically refers to improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP is a specific measure of economic welfare that does not take into account important aspects such as leisure time, environmental quality, freedom, or social justice. As we understand in the economic periphery of lives, country's infrastructure and the scope to grow depends primarily on the strategy of the state. If a country does not grow despite their constant strife in fact is due to the inadequate chartering of their visions in the planning. Political unrest, conservative idealism and lack of human spirit are the factors to leave the countries behind the global race. One of the chief reasons of failures in the achievement of economic development in spite the honest motive of a state is social values. Marxist theory of equality and social justice may prevent rapid economic growth like the Capit alist' economy where private authorities contribute more massively to the national growth. DEVELOPMENT ECONOMICS FOR BETTER LIVING: AN ANALYSIS Development economics emerged as a branch of economics because economists after World War II became concerned about the low standard of living in so many countries of Latin America, Africa, and Asia. The first approaches to development economics assumed that the economies of the less developed countries were so different from the developed countries that basic economics could not explain the behavior of less developed country economies. Such approaches produced some interesting and even elegant economic models, but these models failed to explain the patterns of no growth, slow growth, or growth and retrogression found in the less developed countries. Slowly the field swung back towards more acceptances that opportunity cost, supply and demand, and so on applies in this regard. This cleared the ground for better approaches. Traditional economics, however, still could not reconcile the weak and failed growth patterns. What was required to explain poor growth were macro and institutiona l factors beyond micro