Financial Management essay Example | Topics and Well Written Essays - 2000 words

Financial Management - Essay Example Through the recent observations made by the organization it had been observed that Tulip Refractory is making a continuous loss for a span of consecutive five years but while the sister concern of the organization working with Cafe 88 is earning a year on year profit on a similar basis, i.e. no commercial price is to be charged from the office staff. From this study we have to analyze the reason for the loss of Tulip Refractory under the mentioned organization and how the sister concern of the main organization is earning profits working with Cafe 88(Analysis of Financial statement, n.d., and pp.1-10). Main activities of the Organization The main activities of Tulip Refractory are to provide meals, snacks and refreshment on working days to various staff of the organization. During the weekends the staffs of the Tulip Refractory are allowed to do some catering in private functions and ceremonies. Similar is the function of the Cafe 88 but we can observe a remarkable difference in the operation of both the catering services. This has put the main organization to take adequate steps based on the financial analysis thus conducted as follows. ... The main function of making an effective financial analysis of the company is to draw conclusion to arrive at a decision which will be in the best interest of the company. For achieving this purpose we employ the tool of ratio analysis under which three main aspects of a company are analyzed on the basis of its profitability, liquidity and efficiency/solvency. Liquidity Analysis The liquidity of the company means the repayable factor of a firm generally in cash form. The company which has assets which can be easily turned into cash for the purpose of meeting with the obligations of a company is called the liquidity analysis of the company. The liquidity of the firm has thus been found with the help of current ratio, quick ratio and cash ratio (Brigham, et. al., 2010, pp.93-110). Particulars (All values in pound) Tulip Refractory Cafe 88 Year 2011 2011 Current Assets 9000 16000 Current Liabilities 6000 4000 Current Ratio 1.50 4.00 Current Ratio mainly gives us an idea regarding the sh ot-term liability capacity of a firm. Higher the current ration more is its ability to repay its obligations. From the recent findings we can analyze that the repayment capacity of Tulip Refractory is much less in comparison to Cafe 88. This is because the liability of Cafe 88 is less with respect to the assets acquired by the catering firm. Particulars (All values in pound) Tulip Refractory Cafe 88 Year 2011 2011 Bank and cash 1000 14000 Debtors 5000 0 Total quick Assets 6000 14000 Current Liabilities 6000 4000 Quick Ratio 1.00 3.50 Quick ratio is known to be a much more conventional with respect to the current ratio; thus considered a better liquidity measure. Inventory in most of the companies is considered to be the most illiquid form of asset hence it