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Accounting, Finance, SPSS
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English (U.S.)
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Topic:

A Report on Financial Ratios of Santos Limited Company (Coursework Sample)

Instructions:

I WAS REQUIRED TO CALCULATE AND GIVE FINANCIAL RATIOS OF SANTOS LIMITED. THE SAMPLE CONTAINS A SUMMARY OF ALL THE RATIOS CALCULATED

source..
Content:

A Report on Financial Ratios of Santos Limited Company
(Student’s Name)
(University’s Name)
Significance of measuring of Organizational Performance
Organizational performance measurement is among the most popular terms used in the modern public sector management terminology. The idea of measuring the organizational performance is widely adopted and accepted worldwide. Moreover, this idea has dramatically extended in both public and private sectors. In fact, in today’s businesses, managers do more than just setting the organizational goals. They employ accounting tools to measure the organizations' performance. Performance refers to the process of doing some tasks in an organization as well as achieving the intended goals. Generally, performance is said to be the outcome of work because the employees in an organization provide the strongest linkages of the strategic goals to be achieved. Performance measurement is composed of various methods such as collecting, analyzing and reporting relevant information regarding the overall performance of an organization, group or individual.
In the contemporary world, most of the organizations employ cost accounting and financial accounting methods to measure the organization performance. For this reason, Santos Limited one of the Australia’s largest producers of oil and gas to the domestic market should employ these accounting concepts to measure its performance. According to CITATION Raj10 \l 1033 (Rajasekaran & Lalitha 2010), cost accounting is a branch of accounting that measure, classifies and also records costs incurred by an organization in a particular financial year. On the other hand, financial accounting gathers and also summarizes the overall financial data in order to prepare financial reports, such as income statements, balance sheets for the company's management, lenders, stakeholders, and investors. The accounting tools exhibit the aims and importance of measuring the organizations' performance.
Measuring performance is a crucial role and it aims at assessing the value of all the employees in an organization as well as the management activities. Further, performance measuring also aims at providing necessary useful insights in a company for conducting annual reviews of the employees and the managers. Metrics such as margins, growth, market share, retention or customer’s satisfaction are also the objectives of measuring the performance of a company. Richard, Devinney & etal.(2009) asserts that financial measures mainly from archival data, like return on sales (ROA), profit and sales are vital in measuring the firm's performance. This archival data measures the firm’s performance by communicating financial information to the decision makers to help them in planning, evaluating and controlling activities in the business, which is the main objective CITATION Bha11 \l 1033 (Debarshi 2011). Managers are able to make well-versed decisions for the future of the organization since organizational behaviors, and research is regularly monitored and measured CITATION Moh12 \l 1033 (Zairi 2012). It ensures that decision making is based on facts but not on emotions. Therefore, measuring an organization’s performance becomes an important element, especially in empirical research.
Additionally, performance measurement enhances the company’s delivery of services and goods. Communication among the internal employees is improved through measurement as well as the external communication of investors, customers’ and stakeholders, thus ensuring delivery of goods and services. Measuring determines how a company’s operational efficiency and the overall effectiveness. Thus, it is significant to ensure a consistent monitoring of the organizational measurement so as to ensure feasibility and guidance in achieving the firm’s goals.
In fact, the accountant in Santos can use the financial information contained in financial statements of the financial year 2013/2014 to compute the company's ratio that will help decision-makers in the company make informed decisions.
Summarized table for the ratio Calculations
YEAR

2013

2014

Profitability

Net profit margin

1 %

- 23.16 %

Gross Profit

1 %

1 %

Return on Assets

1 %

-4.18 %

Earnings per Share

0.53

-9.56

Efficiency

Accounts Receivable Turnover Ratio

4.54 times per year

6.38 times per year

Inventory Turnover Ratio

5.98 times

6.54 times

Short-Term Solvency

Current Ratio

1.20

1.06

Acid Test Ratio

0.96

0.83

Cash Flow from Operations to Liabilities Ratio

0.94

0.95

Long-Term Solvency

Debt to Equity Ratio

101.81 %

137.38%

Debt to Total Assets Ratio

1 %

57.87%

Market Based

Price Earnings Ratio

0.276 times

0.086 times

Dividend Yield Ratio

0.027 cents

0.023 cents

Trends of Ratios in Santos Limited for 2013/2014 financial year
* Profitability
Daly (2002) points out that profitability is the capability of a firm to earn a profit. Profitability ratios compare the income statements accounts so as to portray the capability of a firm to make profits from its operations. Creditors and investors make use of these profitability ratios to judge a company’s return on investment as it is based on the relative level of assets and resources. Profitability ratios are comprised of various ratios such as net profit margin, gross profit, return on assets and earnings per share.
As addressed by CITATION Cha12 \l 1033 (Gibson 2012) net profit margin refers to the percentage of revenue left after costs incurred in running a firm has been deducted from sales. In 2013, Santos had a net profit of 14.33 % while in the subsequent year 2014 the net profit greatly dropped by 37.49 to record a negative figure of -23.16 %. According to these results of the net profit margin, Santos Limited prices its products inappropriately and it does not practice good cost control methods.
Gross profit ratio estimates the percentage of the total sales that exceeds the cost of the goods sold. It measures how a company uses its labor and materials efficiently to manufacture and sell products profitably. In 2013, Santos limited had a gross profit of 30.46% which slightly dropped by 2.27%, to record a percentage of 28.19% in 2014. This trend shows that Santos sells its inventory at low profits percentage which results in minimal profits. Low gross profit ratios are unfavorable to the company. It is likely to be caused by low sale prices of products with corresponding increases in costs incurred.
On the other hand, return on assets (ROA) quantifies the net income generated from the total assets during a particular period of time. Santos has ROA of 2.50% in 2013 which drastically decreased by 6.68 % to a figure of -4.18% in the subsequent year, 2014. This trend presented that Santos is unfavorable for investors to invest in its Company because of the low percentage of ROA. Consequently, the negative decrease in the years shows losses incurred by the firm.
According to CITATION Raj10 \l 1033 (Rajasekaran & Lalitha 2010) earnings per share proves the ability of a firm to pay off its dividends. Besides, investors and shareholders are able to know how profitable a firm is. In 2013, Santos had a total of 0.53 earnings per share, which decreased by 10.09 to record a negative figure of -9.56 in the successive year 2014. The trend shows that Santos has a decrease in its inventory price to pay off its dividends.
* Efficiency
The account receivable turnover ratio reveals the times a firm is capable of turning all its accounts receivable into money in a financial year. In 2013, Santos had a ratio of 4.54 times which slightly increased in the following year 2014 by a ration1.84 to record 6.38. An increase in account receivable turnover shows that Santos collected more receivables in the financial, thus becoming favorable to stakeholders.
Inventory turnover ratio is an efficiency ratio that shows how the stock is effectively used in a company. In other words, inventory turnover ratio determines the number of times the average stock is turned or sold in a financial year. Santos had a ratio of 5.98 in 2013 and it slightly increased in 2014 to 6.54. This proved that with no doubts, the company can convert its entire inventory into cash since it does not overspend by buying unnecessary stock. It is also proves that Santos had high sales which resulted in high performance, thus increasing the company’s efficiency.
* Short-Term Solvency
Gitman & McDaniel (2007) notes that current ratio is an efficiency and liquidity ratio that measures the liquidity as well as the efficiency ratio of the potential of a firm to repay its short-term liabilities with the current assets owned by the firm. It is a vital measure of liquidity since most of the short-term liabilities are due to the successive financial year. Current assets include marketable securities, cash and cash equivalents .Santos had a ratio of 1.20 in 2013 and it decreased in the consecutive year to a ratio of 1.06. It shows that Santos cannot pay off its current liabilities easily with the current assets.
Acid Test Ratio is a liquidity ratio that proves the ability of a firm to repay its current liabilities when the costs exist due with only quick assets, which can be converted into cash within 90days. Quick assets in a company may include cash equivalents, ca...
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