Accounting Ratio Reflection

Introduction

This paper is to consolidate and analyze the financial outcome of Flight Center Company to determine whether or not to continue the investment. In this paper, the profitability, liquidity, asset efficiency and gearing of the company would be illustrated with a series of figures (part 3 and appendix). All the data and figures are oriented from the annual report of Flight Center from 2010 to 2013, and may be limited by timing issues.

Body

• Profitability

To reflect the profitability of the company, profit margin, ROE and horizontal analysis should be referenced. In this case, the profit margin shows a positive trend, increased from 2.34% to 17.59% during these five years; the return on equity also gives a positive outcome, ascended significantly from 6.29% to 26.13% in this period. Thus, it can be seen that the development of profitability of this company is obvious, especially from year of 2010.

• Liquidity

The liquidity of flight center should be reflected by the data of current ratio, quick ratio and cash flow ratio. The Flight Center shows a financial trend that asset plays a more dominant role in the company finance, which means the increase in current asset or the equity; from 2009 to 2013, the current ratio and quick ratio both shows a positive increase, with 1.06 to 1.38, and 1.06 to 1.39 respectively. The cash flow ratio shows fluctuation but also increased to a stable status, from only 0.01 to 0.29 eventually. Hence, it shows that this company financial situation tends to be less risky due to increasing proportion of equity, and the cash flow activity in operation starts into a proper orbit.

• Asset efficiency and gearing

The asset efficiency should be shown by asset turnover ratio, account receivable turnover days and inventory turnover (times). In this paper, the asset turn ratio shows a slightly fluctuating flow with the peak of 0.98% and the bottom of 0.88% in these five years; and this means the company productivity can be maintained in a stable area. In addition, the increase in account receivable turnover days, with 61 days to 88 days, and decrease in average inventory from 2038.68 to 1688.94, show that the ability of collecting credit sales and generating sales tends to be reduced slightly in such years. Hence, asset efficiency of this company shows a negative trend.

Conclusion

In conclusion, the increasing profitability and stable liquidity illustrate that this company tends to develop into a mature status in terms of finance status. However, the sales credit collection and sales generation ability of this company shows a negative result; this may be because the market is becoming saturated, and development speed of company exceeds that of the market space.

Recommendation

Hence, from the current financial figures, it is suggested that the decision of investment to Flight Center is correct, and the financial interest of shareholder can be fulfilled stably. However, this company should also take a series of financial and marketing measures to develop the asset efficiency, trying to match the company development with the market development.

Reference List

Flight center. (2009). Annual Report to shareholder . 

Flight center. (2010). Flight center Annual report 2010. 

Flight center. (2011). Flight center annual report 2011. 

Flight center. (2012). Annual Report to shareholder. 

Flight Center. (2013). Flight Center Annual Report. 

Appendix

• Profit margin trend and ROE diagram

Profit margin= EBIT/Sales revenue *100

REO=Profit available to owners/ average equity *100

[pic 3]

• Current ratio, quick ratio and cash flow ratio trend diagram

Current ratio =current assets/current liabilities