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Accounting

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Accounting

The report focus on the financial statement analysis of Tick-Tock during 2005 to 2007.And at the same time provides the recommendation whether to purchase Tick-Tock for $275,000 or continue looking for another business. This financial statement has been divided into three segments: profitability, liquidity and financial stability .The first part is profitability which focuses on different aspect of return on investment & evaluating operating performance ratios. And the second segment concrete on the liquidity, as this ratio measures a company's ability to pay short-term obligations, the current ratio of 2007 shows that the firm has a good short-term financial strength to meet its current liabilities. The third part illustrates the financial stability of Tick-Tock Company, which indicates the proportion of assets provided by creditors became more during the two years.

Probability

From the analysis of the data provide, we can know that the return on total asset ratio of 2005 is 37.36%, but in 2007 is 26.06%, the ratio has decreased by 11.3%.This means that the company become less profit. The return on ordinary shareholders’ equity ratio also decreased from 32.82% of 2005 to 24.17% of 2007, this ratio measures the return earned on assets provided by owners, and the decreased ratio indicates the company using the shareholder’s equity low efficient. These two ratios indicate that the business is making less profitable return on their borrowed money during 2005 to 2007. From the horizontal analysis which begins with the monetary amount change, we can see that compared to 2006, in 2007 net sales decreased by 2.21%, which leads directly to gross profit dropping by 4.35%.And the ratio also shows that although the profit after tax has increased from 2005 to 2006, and then decreased in 2007. As the dividend payout ratio measures the percentage of profits paid out to ordinary shareholders, a 148% dividend payout ratio in 2007 indicates the business paid more than one time of its profit as dividends and it has not enough big power for growing. So according to these ratios Tick-Tock is making a decreasing and not satisfactory profit during 2005 to 2007.

Liquidity

The current ratio of Tick Tock Pty Ltd from 18.83 in 2005 decrease to 7.41 in 2006 and then decline to 4.81 in 2007. It indicates this company has the ability to meet its short-term debt from its current. Maybe due to this company had many assents on hand, they used the assets to do some investments and other stuff so that reduced the assets and they wanted to make current assents more efficient and make more money. In terms of quick ratio which is a more rigorous measure of short-term liquidity. In 2005 and 2006, the quick ratio was 2.33 and 1.24, they mean the company can use the cash and receivable cover its current liabilities. In 2007, however, it decreased to below one; it was 0.85 which illustrate that the company has not a good ability to pay off the immediate demands of creditors not by the sales of inventory, but using its cash and receivable. From the figures, we can see that as a business company, the current ratio is relatively satisfying and the company has a relatively ability to meet current obligation because a little weak in the situation in quick ratio of 2007. Following by debtor turnover and collection period, the dates show the good position, the net sales income always much more than average receivables balance despite they show the decrease tendency from 67.5 times in 2005 to 54.8 times in 2007, and the collection period is all not over one week, the company has not some problems with excessive of receivables balance. For its inventory turnover ratio, these 3 years are all similar which from 3.59 times in 2005 and 2006 little dropped to 3.52 times in 2007. It indicates that the sales of the firm always keep stable. All there liquidity ratio show us that this company has ability to its obligations and daily operation is in a good situation.

Solvency

We will focus on solvency ratios. The debt ratio has increased from 28.02% in 2005 to 39.57% in 2007. It means during these years, the company used more liability in its operation. So the percentage of assets which provided by creditors became higher and increase the burden of company. But everything has two aspects, if this company can controlled this in a reasonable situation; it is help to company, the decrease position on equity ratio, from 71.98% in 2005 to 60.43% in 2007. This ratio examines the relationship between total equity and total assets, the higher the equity ratio, the greater the asset protection to creditors. In this case, there does existence the risk of the business (Hogget, J, Edwards, L, & Medlin, J, 2006, p, 1068). And the capitalization ratio

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