Ratio analysis involves methods

Category: Finance, Tax
Last Updated: 28 Jan 2021
Pages: 2 Views: 23

Ratio analysis involves methods of calculating and interpreting financial ratios to analyze and monitor an organization's performance. (Gitman, 2009). Using ratio analysis, we assess the center's financial condition. There are a lot of financial ratios used to assess an organization's financial condition, but with the given data, we can only make use of proftiability ratios. Since the data available are more on revenues and expenses of the center. One proftiability ratio is the net profit margin which measures the percentage of each sales dollar remaining after all costs and expenses have been deducted.

(Gitman, 2009). It is derived by dividing net income with revenue: This ratio, if positive, indicates that the center is receiving more than it is paying. So we can say that it has a positive financial standing. 1. What are some recommendations you may have to achieve 15 percent profit for the school year August 2009 – July 2010? Please show your work and calculations. Based on the computation in Number 1, the center will achieve a 15% profit on revenue or higher if it can maximize its capacity and try to control its expenses making sure that it will not increase to more than what is projected.

In fact, its projected net ptofit margin is at 19. 63% of revenue based on maximum capacity of the center. But this ratio maybe improved. To do this, we must understand the factors that affect the net income of the center. Net income is the difference between the revenues and expenses for a specified period of time. (Williams, Haka ; Bettner, 2004) Its amount depends on the amount of revenues and expenses. If u want to achieve a higher net profit, the center could increase its revenue and minimize expenses. To increase revenue, marketing for more enrollees will help a lot.

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However, the maximum increase in revenue is limited to the maximum capacity of enrollees the center can accommodate. One way to increase revenue would be to increase tuition fees. Increasing enrollment will also increase some operating expenses. Unlike with the increase in tuition fees, only taxes will increase together with the increase in revenue. Or expenses maybe reduced. Looking at the expenses enumerated in Number 1 computation, we can do something with the credit card payments and supplies for the center. We can control these expenses that they do not increase, much better, that they decrease.

With all these, surely the net profit ration will improve. 2. Due to the ages of the owners and their stated annual income plus a possible 15 percent profit, what are some investment suggestions to plan for retirement and tax shelters? Please show proof of suggestions to cover a 20 year period. With the current annual income the couple is receiving and the potential 15% profit it will gain from the operation of the center, they could invest in a retirement plan which will pay1,060,745 $20,455. 59, given a rate of interest at 5% per annum. Computation follows:

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