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Accounting Information For Decision Making Essay

3996 words - 16 pages

PART 1 - Problem Solving (5%)The six ratios (i.e. Profitability, Efficiency, Liquidity, Gearing (leverage), Investment and Finance Strength (stability)) shall be used to provide the best analysis possible for the directors of Helena Beauty Products Ltd.The formula and the guides to analyze the ratios are credited to a dedicated investment website The website provides information for those whom seek basic understanding and usage of ratios for managerial consideration.-PROFITABILITY RATIOReturn on Assets (ROA) =2006 ROA =2007 ROA =ROA is used to show how much income that generated from the total assets / invested capital. According to the calculation, there's a slight improvement in the profitability from 2006 to 2007. From the managerial perspective, the company should try to increase the net profit and reduce the total investment. Simply put, the company must try to optimize the utilization of the assets owned / already invested by the company in order to obtain higher profits. In general, the company is in good shape as the ROA is stable and have a trend toward positive increase.Return in Owner's Equity (ROE) =2006 ROE =2007 ROE =ROE informs the rate of how much the shareholders earned from what their share to the company's capital. The company shows a positive trend in 2006 to 2007. This shows that the shareholders' earnings are increasing although very slowly. Positive movement in ROE will give positive impression to more investors who interested to invest some capital in the company. For a company that relies heavily on investors, positive and strong growing of ROE is very important. Current shareholders also feel safe and will have intention to keep the money in the same company.Net Profit Margin =2006 Net Profit Margin =2007 Net Profit Margin =Gross Profit Margin =2006 Gross Profit Margin =2007 Gross Profit Margin =By observing the Net Profit Margin & Gross Profit Margin as shown above, the company has a very little grow from 2006 and 2007. From the Gross Profit side, we can see that the company made a very big % profit - more than 40%. And it even grows in 2007. However, after the expenses, the company has too many expenses that virtually kill the profit earned by the company. From management perspective, the company must cut-cost through out the company in order to increase the profit margin.-EFFICIENCY RATIOThis ratio is to measures the efficiency of the company in using the inventory to generate profits for the company. In General, the lower the turnover (in days) means the company performs better.For Helena Beauty Products Ltd., the company should have very low turn over because the nature of the product (although not specifically mentioned) that is categorized as consumptive product and has a regular usage daily. Thus the inventory should re-stock and sold in a regular basis and considered short time. Based on the financial statement available, the amount of the closing inventory is increased...

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