INTERNAL ANALYSIS
Ratio analysis is essential in every firm. It helps in the evaluation of a business’s performance. There are four key categories of ratios used for financial analysis. These ratios are categorized into Liquidity, Valuation, Leverage, and Profitability ratios (Karale, 2020).
According to the calculated current ratio, the revenue fluctuated a lot in the past three years for the company. In 2018, revenue was $ 4,471,223 while in 2019, it was $ 4,508,662, and in 2020, $ 3,849,590. Children’s Nest posted a 14.62% decrease in revenue year over year in 2020. Meanwhile, their total expenses decreased by 15.62%.
Liquidity refers to how an asset can be changed into cash. The liquidity ratios show the firm’s or debtor’s ability to pay off its obligations. These ratios include current ratios and cash ratios. Children’s nest must work a lot on the financials for the coming year as it would be helpful for the company in the long run. The result of 2018 current ratio was 1200.31 and gets lower 173.85 in 2019 and 0.55 in 2020. The cash ratio of 2018 was 1024.64 and 149.49 in 2019, and 0.43 in 2020.
The current ratio for the year 2020 was 0.5521 which is the current ratio that displays the company’s aptitude to pay its short-term obligations. A current ratio greater than 0.5 to 1.0 is desirable. The cash ratio for the year 2020 was 0.43 which is the cash ratio confirms the business’s capacity to pay its short-term obligations using cash or cash equivalents. Therefore, any cash ratio between 0.5 to 1 is considered attractive.
The profitability ratios aid in assessing the firm’s ability to generate earnings concerning its income. These ratios may include the net profit margin and the gross profit margin. The profitability ratio of the company is also quite average as it must be improved to produce more benefits for the shareholders by providing them enough benefits and generating enough profit. Children’s Nest’s return on assets for the year 2018 was 0.9989, In 2019, it was 0.9962, while in 2020 decreased to 0.2341. The table below shows the calculated profitability ratios for the company over three consecutive years.
The net profit margin helps link the establishment’s profits to its total revenue. Net profit margin shows how a company changes its sales into proceeds. The Children’s Nest’s net profit margin ratio for 2018, 2019, and 2020 was 0.157, 0.162, and 0.172, respectively. The trend shows an upsurge in the net profit margin from 2018 to 2020. It is an indication that the company is using its sales well to generate proceeds. The gross profit margin ratio helps compare the company’s gross profit to its total revenue. Therefore, greater gross profit margin is good. A high gross margin means high capital hence a firm can pay its obligations. The gross profit margin of Children’s Nest increased over the three years.
The profitability ratios aid in assessing the firm’s ability to generate earnings concerning its income. These ratios may include the net profit margin and the gross profit margin. The profitability ratio of the company is also quite average as it must be improved to produce more benefits for the shareholders by providing them enough benefits and generating enough profit. Children’s Nest’s return on assets for the year 2018 was 0.9989, In 2019, it was 0.9962, while in 2020 decreased to 0.2341. The table on the last page shows the calculated profitability ratios for the company over three consecutive years.
Comment
- Conduct a financial analysis. In addition to looking at sales growth rates for the last three years, this analysis should include analysis using the four types of financial ratios (Profitability, liquidity, leverage, ratio calculations) for the same three-year period. Also, include the numbers for the industry or for a company you are using to benchmark your company against.
Don’t just crunch the numbers here, you want to also analyze the trends and try to explain what is contributing to these trends. Do not simply present the numbers, you need to discuss their implications. You can summarize the financial results in the text and put many of the tables in the appendix. You may want to include some key graphs in the text to support or emphasize a point.
Overall your financial analysis was strong, however there were some areas I pointed out in your document where you can give more detail and context. One area of weakness was comparing any of these values to industry values or competitor values. Competitor values are more difficult, but there are industry ratios that were provided or could be calculated from the IBIS world report.
