Shariah Audit

In: Business and Management

Submitted By enhusna
Words 903
Pages 4
QUESTION 3 (a)
Financial performance of HMI In order to measure the HMI’s financial situation, we had used several ratios analysis including current ratio, gross profit (GP) margin, debt to equity ratio, and also average collection period. Based on the ratio analysis for liquidity, it is shown that HMI’s current ratio is 1.76, which is higher than 1.0. It means that HMI has ability to pay current liabilities using their assets that can be converted into cash in the near term. In term of profitability, the GP margin of HMI is only 32.6% from its revenues. From our analysis, it shows that HMI incur high cost of sale which leads to low gross profit. In term of debt to equity, HMI has ratio above 2.0 which is 2.97. It is quite dangerous for HMI because it puts their creditors at higher risks. Besides that, higher debt to equity ratio signal weaker balance sheet strength and often results in lower ratings. Last but not least, we measure the performance of HMI in term of activity ratio; average collection period. From our analysis, the average collection from its clients is within 43 days. It is quite a long period that HMI must wait to get their cash payment from the sales incurred. Longer collection period will lead to bad debt which also will affect the firm’s current assets. The table below shows the summary of HMI financial performance during 2011. RATIO ANALYSIS | 2011 | CURRENT RATIO | 1.76 | GP MARGIN | 32.6% | DEBT-TO-EQUITY RATIO | 2.97 | AVERAGE COLLECTION PERIOD | 43 days |
Table 1: Financial performance of HMI during 2011 year ended
Comparison of financial performance with prior years and competitors This part will discuss further regarding the comparison of HMI’s financial performance with prior years as well as other competitors. The analysis of financial performance is within 6 years of its operation; 2006 up to 2011. While for comparison with its…...

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