Make observations. Using the financial ratios please answer the following questi

Question

Make observations.

Using the financial ratios please answer the following questions:

Has ROE been rising or falling? If so, what has contributed to this change?

Has the company drastically increased or decreased its use of debt?

Has the company’s liquidity position changed over the three years?

What trends do you see developing in the data? Do you see any major changes in the financial status of the company over the time period?

1 Income Statement 12/31/17 12/31/16 12/31/15 12/31/14 3 Revenue 4 Total Revenue 5 Cost of Revenue 6 Gross Profit 7 Operating Expenses 8 Research Development 9 Selling General and Administrative 10 Non Recurring 1,652,0009,318,000 11,199,00013,147,000 9,066,000 2,586,000 1,425,000 2,250,000 2,654,000 7,893,000 8,949,00010,493,000 32,000 284,000 33,000 291,000 69,000 341,000 95,000 383,000 10,000 2,000 6,000 12 Total Operating Expenses 13 Operating Income or Loss 14 Income from Continuing Operations 15 Total Other Income/Expenses Net 15 Earnings Before Interest and Taxes 17 Interest Expense 18 Income Before Tax 19 Income Tax Expense 20 Minority Interest 1 Net Income From Continuing Ops 22 Non-recurring Events 23 Discontinued Operations 24 Extraordinary ltems 25 Effect Of Accounting Changes 26 Other Items 27 Net Income 28 Net Income 29 Preferred Stock And Other Adjustments 30 Net Income Applicable To Common Shares 10,149,000 1,503,000 9,017,000 10,137,000 11,931,000 301,00 1,062,0001,216,000 344,000 1,503,000 104,000 1,159,000 600,000 -463,000-1,399,000-1,279,000 301,000 1,062,000 1,216,000 309,000 63,000 284,000 2,275,000 2,043,0002,071,000 2,474,000 347,000 -243,000 162,000 184,000 270,000 337,000 402,000 559,000 346,000 739,000 217,000 -400,000 863,000 -256,000 217,000 -400,000 -863,000 256

Explanation / Answer

a) ROE is the return on equity calculated by dividend net income with shareholders equity, the ROE of the company in 2014 to 2016 was negative, this was mainly because the company was facing losses. In 2017, the company started making profit and hence the ROE for the company increased b) Financial leverage is the amount of debt the company uses to fund its assets, as can be seen that the financial leverage of the company has increased drastically in 2017 meaning the company is using more of debt for its funding c) Liquidity position of the company can be examine by current ratio, quick ratio and cash ratio, the more these ratio the more the company is liquid as these ratios uses short term assets and liabilities. Since, all these ratios are on increasing trend the company's liquidity position has increased d) From the data we can see that the companies financial performance is increasing and it has drastically improved in 2017, this is mainly due to increase in sales as also can be see the company is using more debt in 2017, this would be a concern if the company is not able to maintain the increase growth in the following year

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