Internal analysis Essay Example | Topics and Well Written Essays - 1000 words

Internal analysis - Essay Example Financial Resources and Analysis The financial resource of a company is the money available to the company in the form of cash, cash equivalents, credit lines and liquid securities. An entrepreneur needs to have sufficient amount of cash to operate a business successfully. Analytical tools like ratio analysis determine the profitability and business risks of the company. The management of the company needs to analyze the company’s profitability, business risks and financial condition to take a decision related with the company (Abacus, â€Å"Management†). The company had generated sales of $12 million in the financial year 2011. The current ratio signifies the company’s ability to meet the short term obligations of the company and a current ratio between 1.5 and 3.0 signifies that the company is in a healthy condition (Brigham, and Houston 87). The current ratio of ABS is 0.77 and 1.12 in the financial year 2011 and 2012 respectively. The company’s ability to meet its short term liabilities was very poor in the year 2011, however the company’s current ratio strengthened in the year 2012. ... The debt to equity ratio was negative in the financial year 2011 and improved considerably in the financial year 2012. The cash ratio of a company determines the ability of the company to repay its short term liabilities in a short time. The cash ratio of the company should be equal to or below 1.00. The cash ratio of ABS is 0.22 and 0.64 in the financial year 2011 and 2012 respectively. The cash ratio of the company is stronger in the year 2012 which signifies that the company has the ability to repay its current liabilities immediately by using cash or cash equivalents (Gibson 246). The inventory turnover ratio indicates the effective use of the company’s inventory management practices (Andrew, and Gallagher 97). The inventory turnover ratio of the company is 17.16; a high inventory turnover ratio is unhealthy because they represent an investment with a rate of zero. The return of the shareholder’s equity indicates the profitability to the shareholders of the company after including the tax and other expenses. The return on equity ratio in the year 2011 was negative which indicates that the shareholders did not receive any profit in the same year. This was mainly due to the fact that the hospitality industry was not performing well during recession. At the present situation, the hospitality industry is earning meagre profits because the economy is recovering from recession. The return on equity ratio was 5.06 percent in the year 2012 which signifies that the company is yielding profits and may provide better returns to the shareholders in the future. The current ratio of the company has been rising and the acid test ratio is weak. A strong current ratio coupled with a