# 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

### 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.

#### (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].