Analyze the financial statements
The results of vertical and horizontal analysis of the financial statements are located at Appendices A and B as attached. 1. Introduction: The section of paper aims to conduct a financial statement analysis from Section 2. 2. Financial statement analysis Financial statement analysis gives an insight on how the company may be evaluated in terms of profitability, liquidity and capital structure and how said information relates to market performance of the companies stocks, will be prepared.
The company exhibits high profitability with a net profit of 0. 36 in 2006 which further increased in 2007 at 0. 39. In simple terms, this means that the company earns more than one third from its revenues. Said profitability is further confirmed by a very high return on assets at 0. 22 in 2006 which also increased at 0. 26 in 2007. Profitability Wotif, in the eyes of investors, is evidenced by a very high return on equity which was reflected at 1. 18 in 2006 after declining slightly at 0. 90 in 2007.
Despite the decline in 2007, the rate is still high as it could mean that the investors will get almost their amount of investment almost doubled with Motif after one year. 2. 2 Liquidity The company’s liquidity appears to confirm its profitability. Current ratio further improved from 1. 20 in 2006 to 1. 29 in 2007. Normally a ratio of 1. 0 would indicate that company can meet is currently maturing obligations, Wotif must be better than what is normal.
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Capital Structure Capital structure is normally measured using the debt to equity ratio and the company manifested a significant improvement from 4.35 in 2006 to 2. 80 in 2007. 2. 4 Market performance The company claims in its 2007 annual report that the market performance of its stock is doing well. It represented that its share as of June 29, 2007 is at $5. 62, thereby reflective of increase by at 181% from the issue price since its stock listing in June 2006 at an issue price $2. 00. 3. Conclusion The company’s performance from its financial statements in terms of profitability, liquidity and capital structure is confirmed by the very big increase in the prices of company’s stocks in the stock market.
Recommendation As an investment analyst to advice a client that is approaching retirement age and which would like a low risk investment strategy, Wotif’s stock may be recommended for investment on the basis of improved market performance and improved capital structure in 2007. 5. Appendices See attached Appendices A, B and C in Excel file. Section 4. Prepare a cash budget for the next 3 months. (15 marks) The cash budget of the company may appear as follows (See Appendix D for excel form):