Analysis of a balance sheet

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Liquidity state of the firm
This analysis will rely on two financial ratios to determine the liquidity state of the company
Current ratio; current asset/current liabilities
Quick ratio; (Current assets-inventory)/ current liabilities LINK Excel.Sheet.12 “Book1” “Sheet1!R1C1:R5C3” a f 5 h * MERGEFORMAT
Year 2018 (figures in HK Mil) Year 2017
(figures in HK Mil)
current asset 18,162.00 13,873.00
Inventory 1,932.00 1,887.00
Current liabilities 22,785.00 17,877.00
Total assets 75,790.00 73,313.00
(Drunk R Us Ltd, n.p)
The quick ratio for Drunk RUs Ltd for the year ending 2017 was 0.67while that for year ending 2018 was 0.71. This is an improvement. However, comparing with the current ratio of the firm for the year ending 2017 was 0.78 while that for the year ending 2018 was 0.79. These ratios are weak as the recommended ratio for quick ratio should be above 0.9 while that of current ratio should be above 1. Therefore, an investigation has to be done to unearth why current liability is high.
Solvency
This analysis will establish the debt level of the company using debt ratio (total debt/total assets). The debt analysis indicates that in the year 2017 the company had a debt ratio of 0.79 and in the year ending 2018 it had a debt ratio of 0.74. Though there is a decline in the reliance on debt, the ratio is too huge bearing in mind the recommended ratio is 0.5 and below. Therefore, there must be an investigation to determine why there is a high debt level.

Profitability analysis
This analysis will seek to determine how profitable the company is and the following ratio will be utilized;
Net profit margin; net profit/revenue
The net margin for the company for the year ending 2017 was 47.4% while that for the year ending 2018 was 46.7%. A net margin of this level is lucrative, but it raises eyebrows on the realistic in doing business. Thus the nature of the business conducted by the company has to be investigated current liabilities.
Reference
Drunk R Us Ltd. Financial statement “balance sheet” 2018