Financial Analysis of Better Homes Limited

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The income statement of Better Homes Limited

The income statement of Better Homes Limited generally shows a company with steady performance. The company has an accounting revenue of 90,872 euros in the year 2017 and 88,476 in the year 2016. The cost of goods sold is 40,710 euros in the year 2017 and 40,548 euros in the year 2016; this is relatively good since the gross profit for both years is more than half of the total sales revenue. However, there is a risk of exposure due to the rising operating expenses of Better Homes Limited from 19,215 euros in the year 2016 to 21,627 euros in the year 2017. The impact vividly reflects in net profit before taxation which is 29,885 euros in the year 2017 as opposed to 30,003 euros for the year 2016. Increasing operating costs reduces the earnings of the business, and if not checked it may grow to unmanageable levels. Running costs should be minimized as much as possible to maximize profits.

Financial health

Financial health is a business concept that refers to a method of assessing the financial performance of an entity by thoroughly checking the total assets a firm owns and its ability to create revenue that adequately covers both the operating and non-operating costs. The debt to equity ratio is used to measure the company's ability to meet its liabilities on a continuing basis. Better Homes Limited has a debt to equity ratio of 0.16 which shows that the business gets its financing mostly from shareholders and not creditors. The result is a positive indication that the company is avoiding huge interests that accrue from loans given by creditors. Liquidity is a vital aspect of a business; it is measured using the current ratio. The current rate of Better Homes Ltd is 0.63 having considered its current assets divided by current liabilities. The ratio exhibits negative signs since the current liabilities surpass the current assets; therefore, Better Homes Ltd can merely run into financial turmoil.

The company's cash flow statement

The company’s cash flow statement shows a positive amount of cash from operating activities for both 2016 (1,278 euros) and 2017 (1,244 euros). Thus, showing more in the flow of money from its operating activities than outflow. Therefore, it can grow and expand its business in the future. The company should keep the gap between its reported earnings and the operating cash flow in check to avoid liquidity issues which may arise if the firm's growth does not translate to cash.

August 18, 2023

Business Economics Life

Subject area:

Company Investment

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