Financial Accounting and Report Essay Example | Topics and Well Written Essays - 1500 words

Financial Accounting and Report - Essay Example All these ratios have their own specific formulae and they are interpreted by experts by looking at the figures obtained from calculations. The management and the CFOs of large business entities and the users of these statements as well rely heavily on the ratios of a company (Tracy, 2012, p. 14). Net Profit Margins: The gross profit margin ratio shows how much net amount an entity earns on the percentage amount of sales made. This ratio is calculated in percentages and for the given scenario and data, the ratio calculated indicates the fact that the entity has earned sufficient net profits during the previous year. The ratio is sufficient evidence that the company has performed well for earning net profits quite enough for its forth coming years’ operations. Looking at the ratio, the new investors can be expected for making investment in the company as the figures of the ratio will boost their confidence that the company will continue to be performing well. The positive expectations regarding the increase in investors will also benefit the company as the management will look forward to expand the business with further investments for new investors. Current Ratio: Current ratio means the respective currency of current assets the company holds for a single respective unit currency of current liability (Leach, 2010). Or, simply, the number of Euros of current assets available to the company to meet a single euro of current liability. The current ratio for the company is quite favorable as it has 3.7 Euros in current assets to meet a single unit in its current liabilities. Gross profit ratio: The gross profit figure of the company is exactly half of the net sales as shown by the ratio. It is a good sign for the company regards the fact that their cost of sales is very nominal allowing the company to earn a sufficient amount of profit even if other operating expenses are a little higher. Since higher gross profits mostly result in higher net profits, therefore