Financial Reporting and Analysis Literature review

Financial Reporting and Analysis - Literature review Example The company should try to increase this net profit in the future as it has fallen below the industry’s operating profit margin of 19%. Return on capital employed is way below the industry average for the company. It is 9.8% in 2009 which is very low. Although it has increased slowly to 10.83% in 2010, it is still way below the industry average of 20%. The company must try to increase this return drastically in the future by decreasing their liabilities. The company’s Return on equity measures the efficiency at generating profits from every unit of shareholder’s equity (BRIGHAM, Eugene F. and Ehrhardt, Michael C., 2010). The company’s Return on equity shows how well a company uses investment funds to generate earnings growth (CORREIA, Carlos et al., 2007). And the company’s Return on equity has increased from 2009-2010 from 5.27%-6.12% which is a very good sign but it is still on the low side. The Company’s return on the asset is neither too high nor too low. It is 8.86% in 2009 and has just increased slightly to 9.89% in 2010. Although, an increase is a good sign but the company must try and further increase this ratio in the ratio by decreasing their asset usage and to increase their net profit even further. Liquidity ratios illustrate the company’s ability to pay off obligations in the short term (CHANDRA, Prasanna, 2008). Current asset ratio and acid-test ratio are observed closely when liquidity is in question. The company is in a fairly good position in both of these parameters. The current ratio of the company has increased drastically from 1.46 in 2009 to 2.73 in 2010. In 2010 it is above the industry average of 2.5 which is a good sign for the company. It shows that a fair amount of assets are available to finance the liabilities of the company and that a company can pay off its short term liabilities quite easily. The Quick