Accounting Assignment Essay Example | Topics and Well Written Essays - 750 words

Accounting Assignment - Essay Example The culprit can be seen to be the ballooning of expenses. It should be noted that depreciation and amortization registers 165% growth while other selling and administration expense records higher growth of 178%. To make matters worse, finance costs more than tripled at 355% from 2003 to 2007. Turning to the balance sheet accounts of the business organization, it should be noted that the mounting finance costs can be traced to the ballooning of assets which is unmatched by the growth in equity. This indicates that the company’s acquisition of asset is financed by the more costly liabilities. Logically, when Best resort to its creditors to finance the acquisition of its assets, it incurs the obligation to pay interest at specific intervals thus boosting its finance cost. The company’s cash account grew weakly at 18% during the seven-year period. Table 2 highlights the financial ratios of Best from 2003 to 2007 utilizing the selected data provided. In terms of profitability, the year 2007 saw a decline both in return to assets and return to ordinary shareholders. It should be noted that this decline indicates the company’s inability to create net income which adds to shareholder wealth and value to its assets. From the high return of shareholder’s equity ratio of .25 in 2006, this slumped to .12 in 2007 meaning that for every dollar invested in the company’s stocks, a shareholder gets 12 cents in 2007 compared to the 25 cents in 2006. Asset turnover also declined from 0.53 to 0.47 signaling lower asset utilization and possibly an inability to maximize the company’s resources. Profit margin ratio is also in decline from .18 to 0.09. The decrease in profitability ratios from the good performance in 2006 can be an indication of company’s difficulty of providing profits to its stakeholders. Consistent with the observation above, the company’s debt to