Financial Analysis for Thorntons Plc Assignment

Financial Analysis for Thorntons Plc - Assignment Example Based on the performance ratios computed, Thorntons' profitability is declining together with its ability to turn revenue into profit. However, the company shows improvement in efficiency evidenced by the declining inventory, debtors' and creditors' ratio. Thortons' current assets are able all its immediate obligation yet most of its liquid assets are tied up in inventory. The company is able to service its interest expense through its operating income. Thorntons' is more dependent on creditors in financing its resources. As an investment, the company's stocks might be unattractive due to the declining earnings per share and return on equity. For a competitor, Thorntons might not post a formidable threat. Supplier will find the company a good customer because of its liquidity and improved creditors' ratio. For a customer, the reduction in inventory ratio might signal less possibility for spoilage. For a potential acquirer, Thorntons might be a good target but still needs a good management for improvement. Financial management is very much essential in ensuring the health and well being of a business organization. Business finance, in the simplest sense, is concerned with the goal of a firm to maximize shareholder value (Keown, et. al. 2004). It should be noted that finance is all about managing the financial resources of a business entity into those opportunities which will yield maximum value for stockholder's wealth. This involves generating cash in order to support the operations of the company and choosing among competing ends of investment opportunities present in the market. Horngren, et al. (2002, pp. 6) defines accounting as the "information system that measures business activities, processes that information into reports, and communicates the results to decision makers." Accounting is generally classified into fields according to the intended users of financial data. Financial accounting focuses on providing information for people outside the firm like creditors and outside investors. Management accounting on the other hand focuses on giving internal decision makers information which aids them in making financial and operational strategies (Horngren, et al. 2002). Accounting and business finance are closely interrelated. The business arena often refers to accounting as "the language of business" implying that a better understanding of the accounting language will aid making better financial decisions (Horngren et al. 2002). Thus, in general, accounting is a prerequisite in understanding the important concepts used in financial accounting. Basic knowledge in accounting is imperative in understanding finance. As stated earlier, concepts which are commonly used in accounting appears in financial management. For instance, a company which needs to determine the profitability of an investment needs to be acquainted with the effects of different transactions on the income statement of the business organization. With this, knowledge in accounting becomes imperative for financial managers. Accounting acquaints individuals with