ACCT 501 : Accounting For Decision Making

ACCT 501 : Accounting For Decision Making

ACCT 501 : Accounting For Decision Making

Assessment 2:

The Royal Society for Prevention of Cruelty to Animals is an Australian animal health and care organisation and here in the current assessment the financial ratios of the organisation is been calculated and analysed to measure it present financial status. The impact of these ratios are been discussed along with the future financial potentiality of the organization (Xu et al. 2014).

Liquidity Analysis Ratios are those through which organisation’s ability to meet its current accounting financial obligations (short-term debts) could be measured. Liquidity analysis includes the current and quick ratios.

Current ratio:

Year

Current Assets ($)

Current Liabilities ($)

Current Ratio

2011

28737178

4426941

6.491430087

2010

30541872

5200223

5.873185054

Quick ratio:

Working Capital ratio:

For the year 2011
Working capital ratio = Total Current Assets / Total Current Liabilities
= 28,737,178 / 4,426,941
= 6.491

For the year 2010
Working capital ratio = Total Current Assets / Total Current Liabilities
= 30,541,872 / 5,200,223
= 5.873

Receivable turnover ratio or Debtors turnover ratio:

It is the activity ratio of the organization use to represents the efficiency of the organisation in using its assets (rspcavic.org, 2017).

Year

Net Debtors ($)

Average Accounts Receivable

Accounts Receivable Turnover Ratio

Accounts Receivable/ Debtors Turnover (in days)

2011

1540209

1274215.5

0.604375398

6.040046335

2010

1008222

2919289.5

0.345365542

10.57051839

Inventory turnover ratio:

Year

Cost of Goods Sold/ Expenditure ($)

Average Inventory ($)

Inventory Turnover Ratio

2011

31355320

654739

6.253999858

2010

30456991

608159.5

6.026336325

Debt ratio:

For the year 2011
Debt ratio = Total Liabilities / Total Assets
= 5,076,963 / 57,540,528
 = 0.088

For the year 2010

Debt ratio = Total Liabilities / Total Assets
= 6,170,195 / 58,525,491
= 0.105

Debt to Equity ratio:

Year

Total Liabilities($)

Shareholder's Equity($)

Debt to Equity

2011

5076963

52463565

0.096771216

2010

6170195

52355296

0.117852356

Debt to Assets ratio:

Year

Total Liabilities ($)

Total Assets ($)

Debt to Assets

2011

5076963

57540528

0.088232819

2010

6170195

58525491

0.105427479

Profitability ratio of an organisation includes gross profit margin ratio, operating profit margin ratio and net profit margin ratio. These ratios are the most important ratios to represent financial performance of an organisation for a particular financial year. Here for the current study, following two ratios are been calculated and analysed (rspcavic.org, 2017).

Operating Profit Margin ratio

Year

Operating Profit ($)

Revenue ($)

Operating Profit Margin

2011

764707

31463589

0.024304506

2010

-528877

30489200

-0.017346372

Net Profit Margin ratio

Year

Net Profit ($)

Revenue ($)

Net Profit Margin

2011

108269

31463589

0.003441089

2010

32209

30489200

0.001056407

Return on Assets (ROA) ratio:

Year

Net Income ($)

Total Assets ($)

ROA

2011

108269

57540528

0.001881613

2010

32209

58525491

0.000550341

Return on Equity (ROE) ratio:

Year

Net Income ($)

Shareholder's Equity($)

ROE

2011

108269

52463565

0.002063699

2010

32209

52355296

0.0006152

Analysis and impact of financial ratios:

From the above calculation it is clearly evident that the organisation becomes more liquid in 2011 than 2010 as the current ratio of the organisation has been increased by 0.62 i.e. by 6.2%. Quick ratio of RSPCA has been also increased in 2011 than 2010 and both of these ratio denotes that the ability of the organisation to meet its financial liabilities become stronger. Working capital ratio of the organisation for the financial year 2011 stands at 6.491 whereas in 2010 it was 5.873. The increased amount of working capital ratio shows that the amount of working capital of the organisation increased which is able to make it financially strong to meet its regular business activities and more solvent. The sufficiency of working capital is the most important element to run an organisation smoothly (Baños-Caballero, García-Teruel & Martínez-Solano, 2014). Increased inventory turnover ratio shows the efficient use of organisation's inventory which is increased in 2011 than 2010. The debtors turnover ratio of the organisation has been increased which is not a good sign as it denotes that the debtors are taking more time to repay their debts to the organization (rspcavic.org, 2017).  

Debt ratio of the organisation represents the volume of debt which is decreased in 2011 as the total liabilities of the organisation decreased and this is also a good sign for the financial health of the organisation. Debt to equity and debt to assets ratio of the organisation decreased in 2011 which represents that the organisation invest less amount of debt in its assets and equity that means the consumption of debt in equity capital reduced. The return ratios are the elements responsible for representing the rate of return on the invested amount of the organisation in its organisational assets and equity. The return on assets (ROA) ratio indicates that the assets of the organisation is been efficiently used than 2010 which has generated a healthy return. The return on equity (ROE) ratio has also been increased in the accounting financial year 2011 than 2010 which denotes that the rate of return to the shareholders who has invested in the company’s equity is increased. The net profit margin ratio and operating profit margin ratio shows that RSPCA become has able to increase their business income in the financial year 2011 than 2010 (in 2010, the operating profit of the organisation stands at negative figure) ( rspcavic.org, 2017).

Future financial potentiality of RSPCA:

From the above calculations conducted in accordance with the financial data provided by The Royal Society of Prevention of Cruelty to Animals (RSPCA) in their annual financial report it is very clear that the financial future of the organisation is very good. The previous and current trends denote that the organisation will be able to generate a healthy amount of income from their organisational activities (Delen, Kuzey & Uyar, 2013). The amount of net profit or income of the organisation has been increased by $76,060 and the increased revenue (increased by approx $1000000) in the year 2011 is an example of its increased financial stability. The decreased liability and increased shareholders equity of the organisation in 2011 represents that the company becomes financially strong in terms of internal investment in the capital of the organisation. The aim of the organisation is to provide prevention to the animals which are becoming a serious issue in today’s scenario and people have become interested towards investing in the activities to prevent animals. The future growth of RSPCA will supported a lot by the people’s awareness of animal health and care which will lead the organisation to become financially strong more than today.  

 

Reference List:

(JOURNAL)

1. Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research67(3), 332-338.
2. Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications40(10), 3970-3983.
3. Xu, W., Xiao, Z., Dang, X., Yang, D., & Yang, X. (2014). Financial ratio selection for business failure prediction using soft set theory. Knowledge-Based Systems63, 59-67.

(WEBSITE)

1.  Rspcavic.org. (2017). RSPCA Victoria Annual Report 2010. [Available from: http://rspcavic.org/documents/About%20us/Annual%20Report/RSPCA_Annual_Report_2010.pdf Accessed on 10 Nov. 2017].
2. Rspcavic.org. (2017). RSPCA Victoria Annual Report 2011. [Available from: http://rspcavic.org/documents/About%20us/Annual%20Report/RSPCA-Annual-Report-2011.pdf Accessed on 10 Nov. 2017].