Financial Performance for SAC 2010 & 2011 Assignment

Financial Performance for SAC 2010 & 2011 - Assignment Example At the end, recommendations are presented for Sparklin Automotive Company on the basis of performance evaluation presented in the report. Ratio analysis refers to the financial analysis tool through which financial analysts carry out the analysis of a company’s financial performance by conducting a quantitative analysis. For the purpose of determining different ratios for the company, its financial statements are considered, which include comparative information, i.e. information pertaining to more than one financial year (Albrecht, Stice, & Stice, 2008; Eugene F. Brigham, 2012; Needles & Powers, 2010). Current ratio is a measure of liquidity position of a company, which determines the amount of liquid assets possessed by a company in comparison with the amounts owed by it in short run. The ratio is determined by dividing current assets with current liabilities of the company (Needles & Powers, 2010). The debt to equity ratio for a company shows that how far a company’s finance is obtained through borrowing with reference to the total equity of the company. This ratio, as the name suggests, is determined by dividing the total debt of the company with total equity (Needles & Powers, 2010). The inventory turnover ratio shows the frequency with which a company’s inventory is sold over a period of time. The ratio is determined by dividing the total sales revenue with the average inventory level or ending inventory, as the case may be (Needles & Powers, 2010). This ratio signifies the efficiency of a company with respect to the collection of its amounts owed to debtors. When accounts receivable turnover is high, it is considered favorable because the company is able to maintain a lower level of receivables with respect to total revenues earned on credit. The ratio is determined by dividing the total revenues earned with accounts receivables (Needles & Powers, 2010). The gross margin percentage is a ratio which shows gross margin as a