Analysis of the Financial Position of the Company Essay

Analysis of the Financial Position of the Company - Essay Example In line with the positive changes in Company D’s income and expense levels during Year 8, its Income Before Tax Return on Equity has increased from 27.20% in Year 7 to 30.79% in Year 8. This rate of return identifies Company D as one that delivers a much higher rate of returns as compared to the other companies in the industry, which have accordingly generated the return on equity rates of 8.1%, 17.2%, and 29.7%. This capacity of the company to earn more than the average member of its industry constitutes a valuable strength. The same is true with the company’s Gross Margin Ratio and Income Before Tax Margin Ratio which, at 31.09% and 10.08%, respectively, turned out to be higher than their Year 2007 counterparts. In consonance with the company’s relatively high Return on Equity when compared with those of the others in the industry, its Gross Margin Ratio – an indication of what the company's pricing policy is and of what the true markup margins are – turns out to be higher than the 27.3% industry average and its Income Before Tax Margin Ratio, which reveals the profit generated by the company using the money invested by its shareholders, is a lot higher than the 3.4%, the industry’s average. Based on the foregoing, it can be concluded that Company D is among the best performers in its industry in terms of profitability. Meanwhile, the company’s comparative balance sheets for Years 8 and 7 showed that its current assets increased during Year 8 only by 15.01% while its current liabilities increased by 24.55%.