Financial Statements for Harvey Norman Australia Essay

Financial Statements for Harvey Norman Australia - Essay Example Overall, Harvey Norman Australia produced profitable 2011 and 2010 business operations. A) Analysis the Company Liquidity Position: The liquidity ratios focus on the Harvey Norman Australia’s ability to pay its liabilities on time. A company is liquid if its current ratio is positive. The company’s liquidity ratio is favorable, if the quick ratio is also positive (Brigham, 2009). 1. Current Ratio. The current ratio is shows the relationship between the company’s current assets and current liabilities. A positive current ratio shows a favorable picture of the company. The current ratio is arrived at by dividing the current assets by the current liabilities (Morrell, 2007). On the other hand, a negative current ratio indicates that the company is not able to use its current assets to pay for its currently maturing liabilities on time. Table 1 shows the company’s 2011 current ratio is 1.82 times. The above computation shows that company’s 2011 current assets (1,433,227.00) is higher than the prior year’s current assets (1,254,100). Likewise, the company’s 2011 current liabilities (786,852.00) are higher than the 2010 current liabilities (669,328.00). The ratio shows that the company’s current assets are 1.82 times higher than the company’s current liabilities. ... 2. Quick Ratio. The quick ratio is shows the relationship between the company’s quick assets and current liabilities. The quick asset amount is arrived at by deducting the inventory amount from the total current asset amount. Similarly, a positive current ratio indicates a positive image of the company. The current ratio is generated by dividing the quick assets by the current liabilities (Smart, 2008). Table 2 espouses the company’s 2011 quick ratio is 6.33 times. The ratio shows that the company’s 2011 quick assets (1,291,009.00) are higher than the prior year’s quick assets (1,200,183.00). The ratio shows that the company’s quick assets are 6.33 times more than the company’s current liabilities. The company’s 2010 quick ratio (5.64) is lower than the 2011 quick ratio (6.33). Using the quick ratio financial statement analysis, the two quick ratios show the company performed financially better in 2011, when compared to 2010. The quick ratio similarly proves that the company has the available funds to defray its present liabilities. B) Activity Position: The activity ratios measure the efficiency and liquidity of Harvey Norman Australia’s management. The ratios include determining how fast the company converts cash into other assets and the other assets back into cash (Taylor, 2006). 1. Inventory Turnover Ratio. The ratio determines how fast inventory is sold. The ratio is arrived at by dividing the company’s cost of goods sold by the average inventory (Taylor, 2006). Table 3 confirms the company’s 2011 inventory turnover ratio is 11.52 times. The ratio analysis shows that the company’s 2011 cost of goods figure (1,129,517.00) is lower than the prior year’s cost of goods amount (1,344,455.00). The ratio also