Discuss About The Interpreting Accounting For Decision Making?

Net profit ratio is a ratio which shows net profit as a percentage of sales. It shows dollar net income earned by the organization from the operating revenue of the organization. In the present case organization is having increasing net profits as well as increasing revenue but in year 2016 company is having declining net profit ratio hence company should focus towards increasing profit ratio.

Efficiency ratio: Days inventory ratio

Days inventory ratio shows the days till when company’s inventory remains with company and will not sale by company. This ratio should be remaining at higher level because it shows fast movement of inventory. In the present case in 2015 this ratio decline but in 2016 this ratio increase. Company should maintain performance regarding ratios as per year 2016.

Return on investment ratio

Return on investment ratio shows that profits of company in the ratio of the total internal or external invested capital of the company (Collier, 2015). Higher ratio satisfies investors and increase growth rate of company, lower ratio declines growth of company. In the present case ratio increase in year 2015 but decreased in year 2016. In coming years company should try to maintain level achieved by company in 2015.

Financial leverage: Debt equity ratio

Debt equity ratio shows the debt funding in the total assets of the organization in comparison of the equity funding. Higher ratio presents that company increasing debt and declining equity. Debt is good for company because it does not maketing interference in the internal operations of the organization.  However it may create problem and may take the organization on the path of liquidation for non-payment of dues (Weygandt, Kimmel, & Kieso, 2015). Hence it is recommended to the company reduce debt capitalization and stop making yearly increase in debt capitalization.

References

Collier, P. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Weygandt, J., Kimmel, P., & Kieso, D. (2015). Financial & Managerial Accounting. John Wiley & Sons