Sample Essay
The financial position of the Excel Company was assessed through the performance ratios and the position depicted by the financial statements, i.e. the balance sheet and the income statement of the company. The results of the company have been compared with the industry norms provided in the case. The return on assets for the company stood at 9.21% in 2007 and was forecasted at 8.3% for 2008. The industry norm is 8.5%. Therefore the performance here is good. The gross profit to sales for the company stood at 21% in 2007 and was forecasted at 20% for 2008. The industry norm is 22%.
The company is lacking here and needs to be more profitable. The operating profit to sales for the company stood at 5.8% in 2007 and was forecasted at 7.6% for 2008. The industry norm is 11.5%. This is very low compared to the industry average. The current ratio for the company stood at 2.15 in 2007 and was forecasted at 2.0 for 2008. The industry norm is 2.3. The company needs to make itself more liquid by investing I more current assets. The asset test ratio for the company stood at 1.28 in 2007 and was forecasted at 9.4 for 2008. Conclusively it can be mentioned that the performance of the company is not up to par with the industry statistics. Moreover the company is also advised to improve its operation, lower its costs and focus on the appropriate costing system instead of taking on the investment and the bank loan right now. The bank loan and a better investment can be taken on in a later stage when the company is financially stable and able to take the burden of a massive investment backed by a loan.
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