Assignment on Financial Ratio Analysis

The financial ratio analysis is an approach which the organizations utilize for evaluating the profitability, solvency, asset management, and liquidity of the organization. The financial ratios provide a brief overview of the financial performance of the organization. The financial ratios are important for both the management and the investors of the organization. The management utilizes the financial ratios for taking various financial decisions whereas the investors review the financial ratios for making investment decisions. Overall the financial ratios huge importance for all the stakeholders of the organization because through ratios the stakeholders get the information about the financial performance of the organization. The financial ratio analysis of square pharmaceuticals is performed to get deep insights regarding its financial performance.

Profitability Ratios

Source: Morningstar

The profitability ratios are computed by the organization to know how much profit the organizations are earning by utilizing its assets. In the above table the profitability ratios of square pharmaceuticals are provided (Chandra, 2011). The profitability ratios of the corporation indicate that the organization is generating a significant amount of profit. The net profit margin ratios were 21.25 in the year 2014 but in the year 2019 the net profit margin ratio was 28.27 which shows an increase in profitability. The ROA and ROE ratios also indicate the good profitability condition of the organization (Fridson & Alvarez, 2011).

Liquidity Ratios

Source: Morningstar

The liquidity ratios show how much cash or current assets an organization has for the payment of its short term loans. The liquidity ratios of Square Pharmaceuticals shows that the organization has enough cash to pay its short term obligations (Fridson & Alvarez, 2011). If the liquidity ratios of the organization are analyzed critically than it can be said that the organization has kept access cash. The organization should invest this access cash somewhere to earn a significant amount of return. The current ratio in the year 2019 was 12.93 and the quick ratio was 10.9 (Mohana, 2011).

Financial Leverage

Source: Morningstar

The financial leverage ratios of the organization indicate how much resources the organization has to pay its long term debts. The organization has financed its assets from both debt and equity (Pandey, 2015). The financial leverage and debt to equity ratios of the company are showing a declining trend. It means that over the years the debt of the corporation has declines and equity of the organization has increased. Currently, the debt condition of the corporation is stable (Fridson & Alvarez, 2011).

Efficiency Ratios

Source: Morningstar

The efficiency ratios indicate how efficiently the organization is using its assets for generating sales (Pandey, 2015).  If the efficiency ratios of Square Pharmaceuticals are analyzed then it can be said that the efficiency of the organization has increased over the years. The fixed asset turnover and inventory turnover indicates an increase in inefficiency. However, there is a lot of room for improvement. The organization should utilize its assets more efficiently for generating sales (Fridson & Alvarez, 2011).

References of Financial Ratio Analysis

Chandra, P. (2011). Financial Management. Tata McGraw-Hill Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Mohana, R. P. (2011). Financial Statement Analysis and Reporting. PHI Learning Pvt. Ltd.

Pandey, I. (2015). Financial Management. Vikas Publishing House.