Question

In: Accounting

Amy Ltd supplies, installs and maintains burglar alarms systems for business clients. The accountant has provided...

  1. Amy Ltd supplies, installs and maintains burglar alarms systems for business clients. The accountant has provided a horizontal analysis and is concerned about the firm's performance.”

Amy Ltd: comparison to previous year

2017

2018

2019

Accounts receivable

1.20%

8.2%

7.4%

Inventory

8.4%

1.7%

4.9%

Sales

-3.0%

1.2%

5.4%

Non-current assets

2.3%

4.8%

7.6%

Borrowings

3%

9.8%

19.8%

Required: provide a brief report on the results of the analysis? Comments should include any concerns you may have

Solutions

Expert Solution

Answer : A brief report on the results of the analysis of various ratios including any concerns is described below.

1. Accounts receivable

Explanation : With the interpretation of data of years i.e. 2017, 2018 and 2019 we can conclude that the percentage of account receivable is increasing over the years which -

  • does not effect company's net income.
  • increasing percentage of account receivable shows that more people are paid on credit which results in drain on cash on company.
  • Having high percentage of account receivable is not good for any company.

2. Inventory

Explanation : With the interpretation of data of years i.e. 2017, 2018 and 2019 we can conclude that the percentage of invntory holding decreased in 2018 but shows a slightly increase in 2019 which shows,

  • For 2018- company has sold more goods than it purchased which is good for company.
  • For 2019- company has sold less goods than it purchased which is not a good sign for company.

3. Sales

Explanation : With the interpretation of data of years i.e. 2017, 2018 and 2019 we can conclude that the percentage of sales in continuously increasing in all years which indicates that company is generating and increasing a handsome amount of revenue

It represent that company is facing it's growth phase.

4. Non-current assets

Explanation : With the interpretation of data of years i.e. 2017, 2018 and 2019 we can conclude that the percentage of non current asstes is incresing every year which indicates that company is loosing it's liquidity and it requires more cash to support its day to day activities.

5. Borrowings

Explanation : With the interpretation of data of years i.e. 2017, 2018 and 2019 we can conclude that the percentage of borrowing is increasing .

Increasing debt causes leverage ratios to rises which forces to company for heavy amount of interest payment.

ekkarill92 answered 2 years ago
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