Statistical Mechanics and its Applications

Question: Discuss about the Statistical Mechanics and its Applications. Answer: Introduction In this report, ratio analysis technique has been used and demonstrated. Lamar Swimwear ltd is the business entity that has been used for the ratio analysis and business analysis has been used. Profitability ratio, solvency ratio and liquidity ratio has been used to analysis different aspects of the Lamar Swimwear ltd. Income statement and statement of financial position has been used to calculate different ratios to analyse business operations. In this report, analyses of different position have been examined and investment decision has been framed. At the conclusion of overall business condition of Lamar Swimwear ltd has been reported to investors in this report. Calculation of ratios Ratio Formula 2009 2008 2007 Gross margin Gross profit / Sales x 100 565,000 / 1875,000 x 100 = 30.13 % 460,000 / 1500,000 x 100 = 30.66 % 400,000 / 1200,000 x 100 = 33.33 % Net margin Net profit / Sales x 100 119,700 / 1875,000 x 100 = 6.384 % 91,800 / 1500,000 x 100 = 6.12 % 88,200 / 1200,000 x 100 = 7.35 % Current Ratio Current assets / Current liabilities 710,000 / 540,000 = 1.31 times 585,000 / 340,000 = 1.72 times 450,000 / 220,400 = 2.04 times Net income to total assets Net profit / Total assets 119,700 / 2100,000 x 100 = 5.70 % 91,800 / 1350,000 x 100 = 6.80 % 88,200 / 1100,000 x 100 = 8.02 times Return on equity Net profit / Equity x 100 119,700 / 856,100 x 100 = 13.98 % 91,800 / 646,400 x 100 = 14.20 % 88,200 / 554,600 x 100 = 15.90 % Debt to total asset ratio Debt / Total assets 1243,900 / 2100,000 = 0.59 times 703,600 / 1350,000 = 0.52 times 545,400 / 1100,000 = 0.50 times Debt-equity ratio Debt / Equity 1243,900 / 856,100 = 1.45 times 703,600 / 646,400 = 1.09 times 545,400 / 554,600 = 0.98 times Time interest earned ratio Earnings before interest and tax / Interest Expenses 260,300 / 85,000 = 3.06 times 186,000 / 45,000 = 4.13 times 160,100 / 35,000 = 4.57 times Earnings per share Net profit for shareholders / Outstanding equity shares 3.15 per share 3.06 per share 2.94 per share Average collection period Trade receivables / Sales revenue / 365 360,000 / 1875,000 / 365 = 70 days 259,000 / 1500,000 / 365 = 63 days 170,000 / 1200,000 / 365 = 51.70 days (Zha and Liang, 2015) In order to analyse investment opportunity in the business organisation different aspects of the entity shall be examined. Ratio analysis is one of the techniques that can be used to analyse business operations and business situation of entity. Ratio analysis is the technique under which financial statements are used for analysing business operations. Profitability, solvency, liquidity and efficiency are four major ratios that are used to analyse business situation of the business organisation. In present case, ratio analysis technique has been used in order to analyse business situation of Lamar Swimwear ltd. Financial statements i.e. statement of financial position and income statement of Lamar Swimwear ltd has been used to analyse profitability, liquidity, solvency and efficiency of Lamar Swimwear ltd. Following is the financial analysis of the Lamar Swimwear ltd: Profitability analysis It is the ratio technique under which profitability of the business organisation will be analysed. In case of Lamar Swimwear ltd, gross profit margin has reflected adequate level of profitability from the primary business operations. Lamar Swimwear ltd has adequate level of gross profit from its business operations. In case of net profit margin, Lamar Swimwear ltd has also shown adequate level. On the other hand, in terms of net profit margin of Lamar Swimwear ltd is lacking behind as compared to industry standards. Net profit margin is the profitability ratio which calculates profit earnings capacity of the business organisation. Return on equity is another profitability ratio that is used to reflect earning capacity for equity shareholders or investors. Return on total asset is another ratio that denotes profit earning capacity by utilising assets of the business organisation (Zha and Liang, 2015). In case of Lamar Swimwear ltd, return on total assets, has not reflecting adequate r esults in term of earning capacity of Lamar Swimwear ltd from its business total assets. This position can hamper business asset of the Lamar Swimwear ltd in later years. Liquidity analysis Liquidity can be defined as the state under which cash availability position in the business organisation. There are two major types of ratios that can be used to measure liquidity in the business organisation. Current ratio is the ratio that is used to analyse liquidity position of the Lamar Swimwear ltd. Current asset and current liabilities are two components of current ratio. This ratio is used to analyse position of liquidity in the business operations and level of working capital in business operations. Liquidity in Lamar Swimwear ltd is positive as current ratio is more than 1 time in all last years (Uechi et al., 2015). As compared to industry standards, Lamar Swimwear ltds liquidity position is not adequate in all three years. Solvency analysis Debt to total assets is the solvency ratio that is used to analyse level of debt used in backing assets of the business organisation. In case of Lamar Swimwear ltd, debt to total assets shows inadequate results i.e. their asset is backed by more than half of debt. In 2009, their total assets are purchased from total debt of the business organisation. Another solvency ratio is debt to equity ratio, which is used to measure proportion in capital structure of the business organisation. In case of Lamar Swimwear ltd, their debt to equity ratio has shown adequate level of safety among investors. As their debt is less than its equity i.e. internal funds. Another solvency ratio that is used to analyse solvency in the business organisation is time interest earned ratio. This ratio is used to analyse interest or financial charges payment capacity of the business organisation. In case of Lamar Swimwear ltd, their solvency capacity in terms of ability to pay financial charges is at good level. As compared to industry standards time interest earned ratio is not at adequate level. Efficiency ratio Efficiency ratios is used to analysis efficiency in the business operations of business entity in terms of receivables, payment and inventory turnover. In case of Lamar Swimwear ltd, debtors collection period has been calculated which reflect collection of cash from the debtors. Debtors collection period is the reflect conversion period of debtors into sales revenue i.e. period when cash is actually collected by the business entity. In case of Lamar Swimwear ltd, debtor collection period has shown inadequate collection period. As compared to industry standards, debtors collection period of Lamar Swimwear ltd is way more. Debtor collection period shall be controlled to as low as possible. In case of Lamar Swimwear ltd, their debtor collection period is at higher level and this means liquidity is postponed in Lamar Swimwear ltd. Conclusion From this report, it can be concluded that Lamar Swimwear ltd has mixed level of business operations. It can be concluded that, different ratios has been used and calculated to analyse business operations. Lamar Swimwear ltd is the business organisation whose business operations has been analysed and commented on. It can be concluded that liquidity position of Lamar Swimwear ltd as compared to industry standard is lacking behind. Solvency position of Lamar Swimwear ltd has shown adequate results as compared to industry standards. On the other hand, profitability position of Lamar Swimwear ltd has also shown inadequate results. Recommendation Since Lamar Swimwear ltd is financially strong in terms of liquidity and solvency therefore it is recommended to invest in it. Only thing that Lamar Swimwear ltd has to improve is debtors collection efficiency in terms of collecting cash of credit sales. As compared to overall industry standards, Lamar Swimwear ltd is not up to mark and has underperformed. On the above basis, it is recommended not to invest in Lamar Swimwear ltd. References Zha, Y., Liang, L. (2015). Aggregated ratio analysis in DEA.International Journal of Information Technology Decision Making,14(6), 1285-1297. doi:10.1142/S0219622014500114 Uechi, L., Akutsu, T., Stanley, H. E., Marcus, A. J., Kenett, D. Y. (2015). Sector dominance ratio analysis of financial markets.Physica A: Statistical Mechanics and its Applications,421, 488-509. doi:10.1016/j.physa.2014.11.055