Financial Analysis Essay Sample

Question 1.
The company’s liquidity position improved in the two years under review. Both the current ratio and the quick ratios have seen an upward trend. In 2016, the company had reported a current ratio and a quick ratio of 1.54 and 0.70 compared to 1.63 and 0.86 reported in 2017, respectively. An increase in the company’s reported current assets and a reduced balance of inventories have contributed to this trend in liquidity. Therefore, to avoid financial distress the company must ensure that there is improved liquidity.

Question 2.
TJX Companies’ profitability has not improved. It is noted that the company’s net profit margin and the operating margin have dropped from their 2016 levels. The company had reported a net profit margin of 7.36% in 2016 compared to 6.93% in 2017. Additionally, the operating margin reported in 2016 was higher at 11.97% compared to 11.51% in 2017. However, the firm’s gross margin has slightly improved from the levels reported in 2016. It is a pointer to management that the enterprise’s profitability is declining.

Question 3.
The company’s efficiency ratios have improved in the two years under review. According to the analysis, the firm reported 2.85 A/R days in 2017 compared to 2.81 reported in 2016. Additionally, the analysis indicates an improvement in the total asset turnover ratio from 2.69 in 2016 to 2.72 in 2017. It shows that the company’s ability to generate revenues from its assets has improved marginally. However, the upward trend of A/R days shows that the company’s clients are taking longer to settle their accounts. It calls for an improvement in working capital management.