Financial Analysis of World of Games

As of June 2015

Submitted to:

Prepared and Submitted by:

Date:

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Table of Contents
Executive Summary:...................................................................................................................................... 3
1. Introduction: ......................................................................................................................................... 4
Profit Margin: ................................................................................................................................................ 5
Gross Profit Margin: ...................................................................................................................................... 6
Return on Assets: .......................................................................................................................................... 7
Return on equity: .......................................................................................................................................... 8
Current Ratio:................................................................................................................................................ 9
Liquidity Ratio: ............................................................................................................................................ 10
Receivable Ratio in times: ........................................................................................................................... 10
Inventory Turnover: .................................................................................................................................... 11
Average Collection Period in days: ............................................................................................................. 12
Debt Ratio: .................................................................................................................................................. 13
Equity Ratio: ................................................................................................................................................ 14
Leverage Ratio: ........................................................................................................................................... 14
3. Conclusion: .......................................................................................................................................... 16
4. Recommendations: ............................................................................................................................. 16
References: ................................................................................................................................................. 18

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Executive Summary:
Financial analysis is an effective tool of inspecting and examining the financial position of the
company. This report has several goals such as the major goals and aim of the analysis of the
financial statements of the company is to inspect the financial position of the corporation on the
basis of the financial statements of the company for the 2015 that assist us to examine the
performance of the company. Another goal of the analysis is to assist the different stakeholders
of the corporation to take their future decisions by evaluating the financial evaluation of the
company as this analysis aim at determining the financial performance of the company.

The methodology used for the analysis includes the evaluation of the financial statements of the
company. In it we will adopt the comparison strategy for making comparison of the two months
financial position of the company and will evaluate as the financial trends of the company is
increasing or decreasing. Ratio analysis provides the assistance to the various stakeholders of
the company as partners, shareholders, investors, customers, creditors etc. We use the ratio
analysis for evaluating the financial position of the company in detail that is a strong and
powerful tool of evaluating financial performance of company. For the purpose of analysis we
get the financial data from the official sites of the company and we use the annual reports of the
company to get access to the official financial data of the company. This report elaborates the
detailed analysis of the financial status and stability of the corporation by computing the
profitability analysis, financial leverage analysis and the liquidity position analysis in reference
to the company. The report also provides information of the future potential of the corporation
along with the suggestions in relevance to the financial status of the company.

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 1. Introduction:
World of Games is a reputed corporation that provides the innovative and versatile combination
of entertaining products and services. The main business form of the World of Games is the
sports business that includes both sports products and the other recreational and entertaining
services for the customers of the World of Games.

The basic goal of this report is the evaluation of the financial performance and evaluation of the
World of Games. This report will be divided into five basic parts in that the first three parts will
include the analysis section in that the various ratios will be used to provide the examination of
the financial position of the company. The first section of the report will be the profitability
analysis section that will include the basic profitability examination through major profitability
ratios for the World of Games. The second part of the report will include the liquidity analysis of
the World of Games that involves the analysis through the basic liquidity measuring ratios for
the World of Games. The third part of the report will include the analysis of the financial
leverage position of the company by examining the financial leverage of the company. The
fourth section of the company will include the concluding remarks on the basis of the results of
the financial ratios for the World of Games and the final part of the report will include the
recommendations and the suggestions depending on the financial analysis outcomes of the World
of Games. In it we will make the comparison of the ratios for the May 2015 and June 2015.

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 2. Financial Performance Analysis:

The financial performance analysis provides the detailed evaluation of the financial position of
the company and also inspects the progress level of the company. For the purpose of financial
analysis for the World of games we have selected the ratio analysis for the two months for the
company and will make comparison of the trend and it is the famous method of evaluating the
financial evaluation of the company. It will provide the snapshot of the performance of the
company to the partners of the World of Games. This table and graphs are representing the
different profitability ratios that are computed with the assistance of the financial statements of
the company to inspect the profitability position of the company.

2.1.Profitability Analysis:

Profitability June Computation for May 2015 Computation Change

Ratios 2015 June 2015 for May 2015
2.89% $9,268.13/$321,760 $22,780/$298,060 7.64% (4.57)
Profit Margin ×100 ×100
Gross Profit 42.27% $136,018.13/ $129,330 / 43.39% (1.12)
margin $321,760 ×100 $298,060 ×100
Return on 4.85% $9,268.13/ $22,780/$180,230 12.63% (7.78)
Asset $191,064.28 ×100 ×100
Return on 14.03% $9,268.13/ $22,780/ $80,560 28.27% (14.24)
Equity $66,048.13 ×100 ×100

Profit Margin:
First is the profit margin analysis for the June 2015 and for the May 2015 and it is computed by
dividing the net profit of the company by the net sales of the company. The analysis and the
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trend in the graph is showing that the profit margin is declining sharply as from May to June
2015 with the change of 4.57% and it is showing the unfavourable profitability trend for the
company. The ability of the sales for generating positive and favourable profit is declining as
from May to June 2015 and sales of company failed to support the profit of the company. The
chart is also showing that the Profit performance of May 2015 is higher in comparison of the
profitability performance of the June 2015.

Chart Title
Series1

7.64%

2.89%

May-15 Jun-15
Profit Margin

Gross Profit Margin:

Second ratio is another profit ratio that is gross profit ratio that is showing that the company is
earning healthy profitability. Gross profit actually measures the revenues that left after deducting
the cost of goods sold and the high and strong performance of the gross profit margin desirable.
The gross profitability of the corporation is also showing a unfavourable and negative effect
when we compare the gross profit margin as from May 2015 to June 2015 and it is showing that
ratio moves from 43.39% to 42.27% in the June 2015 and it is an indication of the fact that the
gross profitability of the company is also declining that is dangerous for the company. The graph
is also showing the same results so overall the gross profit of the company is declining with the
minute value as we move from financial analysis of May to June 2015.

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 43.50%
43.00%
43.39%
42.50%
42.27%
42.00%
41.50%
May-15 Jun-15
Gross Profit Margin

Series1

Return on Assets:
Third profitability ratio is the Return on assets ratio that actually measures as how much return a
company is earning by using its assets and resources. Return on assets performance for the
World of Games is also declining sharply as from May 2015 to June 2015 with the change of the
value of 7.78% as in the May 2015 the return on assets ratio is 12.63% and then it decline
sharply to 4.85% in the June 2015. This is an indication of the sharp declining trend of the return
on assets ratio that means the assets ability to generate the efficient profit level for the company
is declining on sharp basis that is alarming for the company.

Chart Title
Series1

12.63%
4.85%

May-15 Jun-15
Return on Assets

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Return on equity:
Finally the analysis of the profit of the company is through the return on equity that measures the
ability of the company to generate the profits by using the equity of the company. Return on
equity ratio for the World of Games is showing the same result as the other profitability ratios
are showing for comparing the two months profit performance of the company. It is showing that
the Ratio moves from 28.27% in the May 2015 to 14.03% in the June 2015. The negative and
declining change of 14.24% is occurring on comparing basis from May to June. It is showing
that the ability of the equity of the World of Games is declining to generate positive profit for the
company as from May 2015 to June 2015.

30.00%
25.00%
20.00%
28.27%
15.00%
10.00% 14.03%
5.00%
0.00%
May-15 Jun-15
Return on Equity

Series1

So, the overall profitability analysis for the World of Games is highly alarming as the
performance of all of the ratios is declining from May to June 2015 and it need quick attention of
the company’s all partners.

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 2.2. Liquidity Analysis:

The liquidity analysis evaluates the short term performance of the company and it is computed
through various ratios of liquidity.

Computation June 2015 May 2015 Computation Change

Liquidity
for May
Ratios
2015
$168745/ 4.61 $150,960/ 12.93 (8.32)
Current Ratio $36,576.15 $11,670
$168745- 2.13 $150,960- 6.23 (4.1)
$90,816.63 / $78,200 /
Quick Ratio $36,576.15 $11,670
Receivable $321,760 / 20.14 $298,060/ 39.63 times (19.49)
Ratio in times $15,982.50 times $7,520
Inventory $321,760/ 3.54 times $298,060/ 3.82 times (0.28)
Turnover in $90,816.63 $78,200
times
Average $15,982.50× 18.13 days $7,520× 365/ 9.20 days 8.93
Collection 365/ $321,760 $298,060
Period in days

Current Ratio:
The current ratio is representing the trade off between the current assets and the current liabilities
of the company. The current ratio is showing the shocking results for the liquidity position of the
company as the current ratio for the World of Games is declining and reducing with the negative
change of 8.32% from the May to June 2015. In the May 2015, the current ratio is 12.93 and in
the June 2015 it decline to 4.61. It is a sign that the current ratio of the World of Games failed to
meet its short term obligations. The graph is also representing the declining trend.

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 15
10 12.93
5 4.61
0
May-15 Jun-15
Current Ratio

Series1

Liquidity Ratio:
Quick ratio is the liquidity ratio that excludes the influence of the inventory to avoid
deterioration effect. The liquidity ratio for the World of Games is showing that the ratio is
reduces in dramatic and sudden manners from the May 2015 to the June 2015 with the prominent
change of the 4.1%. The quick ratio was 6.23 in May 2015 and then it decline to the level of 2.13
in the June 2015. It is showing that the ability of the liquidity ratio is declining sharply and it is
alarming for the short term position of the company.

8
6
4 6.23
2 2.13
0
May-15 Jun-15
Liquidity Ratio

Series1

Receivable Ratio in times:

Receivables ratio is showing the position of the receivables of the company and the ratio for the
World of Games is showing that the ratio is declining with the change of 19.49% when we
compare the May 2015 to June 2015. It is elaborating that the ratio moves from 39.63 as in May

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2015 to the 20.14 in the June 2015. It means the receivables are experiencing declining and
unfavourable trend on comparison basis for the two months that is not good for the company.

40
30
39.63
20
20.14
10
0
May-15 Jun-15
Receivable Ratio in times

Series1

Inventory Turnover:
Inventory turnover actually compute the ability of the corporation by that the company make use
of the inventory for production and replace the inventory. Inventory turnover ratio for the World
of Games is showing the slight negative trend for the ratio with the slight unfavourable change of
the 0.28% on comparison basis of the May and June. The inventory turnover ratio decline
minutely from 3.82 in the May 2015 to the 3.54 in the June 2015 and it is an indication of the
negative trend as the ability of the inventory to generate the positive sales of the company
declines in June 2015.

3.9
3.8
3.7 3.82
3.6
3.54
3.5
3.4
May-15 Jun-15
Inventory Turnover

Series1

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Average Collection Period in days:
Average collection period measures the number of days involved for converting the credit sales
to cash. This is the only liquidity ratio that is showing the positive and favourable values but it is
also indicating that the time period for turning the credit sales to the cash increases as from the
May 2015 to June 2015 with the change of 8.93% that means the company relaxed their credit
terms that can be good for the credit sales but it is also an indication of the slow recovery of the
payments. The ratio moves from 9.2 days in May 2015 to 18.13 days in the June 2015.

20
15
18.13
10
9.2
5
0
May-15 Jun-15
Average Collection Period in days

Series1

The overall liquidity position of the World of Games shocking and alarming as all the ratios are
showing the unfavourable and negative trends for the liquidity position of the company and it is
an indication of the fact that the company failed to meet its short term obligations in an efficient
manners.

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 2.3. Financial Stability Analysis:

Financial leverage measure the ability of the company to pay off its long terms debts and it also
shows the debt and leverage position of the company.

Financial Computation June May 2015 Computation Change

Stability 2015 for May
Ratios 2015
$88,440/ 46.29% $88,000/ 48.82% (2.54)
Debt Ratio $191,064.28 $180,230
$125,016.15/ 188.92% $99,670/ 123.72% 65.3
Equity Ratio $66,048.13 $80,560
$88,440/ 1.34 $88,000/ 1.09 0.24
Leverage Ratio $66,048.13 $80,560

Debt Ratio:
Debt ratio actually measures the ability of the company to manage efficiently its debt by the use
of the assets and the resources of the company. The debt ratio for the company is declining
minutely with the change of the declining 2.54% when we compare the debt ratio of the May
2015 and June 2015. The debt ratio moves from 48.82% in the May 2015 to 46.29% in the June
2015 but this negative trend is favourable and growing for the company as it is showing that debt
level of the company is declining minutely that is favourable for the company and it is showing
that the ability of the company to meet the long term debts of the company is improving slightly
that is a positive sign.

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 49.00%
48.00%
48.82%
47.00%
46.00% 46.29%

45.00%
May-15 Jun-15
Debt Ratio

Series1

Equity Ratio:
Equity ratio actually measures the proportion of the financing of the assets from the equity and
the debt. The equity ratio for the World of Games for the two months comparison basis is
elaborating that the ratio is increasing prominently from 123.72% in the May 2015 to the
188.92% in the June 2015 with the positive change of the 65.3% and it is an indication that the
company’s ability to finance its assets more with the debt options enhances as from May to June
2015 that is not a favourable trend for the World of Games.

200.00%
150.00%
188.92%
100.00% 123.72%
50.00%
0.00%
May-15 Jun-15
Equity Ratio

Series1

Leverage Ratio:
Leverage ratio is another ratio that provides the information on the combination of the use of
equity and the debt in the capital structure of the company. The leverage ratio for the World of
Games on the comparison basis of two months is showing that the ratio trend is not favourable

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for the company as it moves from 1.09 to the 1.34 from the May to June 2015 with the change of
0.24 on comparing basis. It is an indication of the fact that the proportion of the debt in the
capital structure of the World of Games enhances in comparison of the proportion of the equity
and debt financing is considered riskier in comparison of the equity financing that is a secure
way.

1.5

1 1.34
1.09
0.5

0
May-15 Jun-15
Leverage Ratio

Series1

The overall financial stability position of the company is showing the mixed form of the results
when we compare the financial stability of the World of Games from May 2015 to June 2015 as
the debt ratio is the ratio with the favourable trend while the equity ratio and the leverage ratio is
showing the unfavourable trends for the company as it is showing that the debt proportion is
increasing in the company.

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 3. Conclusion:

It is concluded that the World of Games is a reputed company but the performance of the
company is not appealing and attractive in most of the aspects. This report evaluates the
profit analysis, financial stability analysis and the liquidity analysis for the World of Games
as from May 2015 to the June 2015. The Profit analysis is showing the shocking and
alarming situation for the company as all the profit ratios are showing the declining trends for
the World of Games that indicates the profits of the company is declining and reducing as
from May 2015 to the June 2015. The liquidity analysis is also showing the negative trends
for the company and it is showing that the company is losing its ability to meet its short term
obligations on efficient basis as all of the liquidity ratios are showing unfavourable trend for
the company. The financial stability position of the company show a little positive scenario
due to the declining debt ratio that means the debt proportion is declining in the company but
the trend of the financial leverage analysis and the equity ratio are again shocking that
indicates that the company is financing its operations majorly through the debt that is
negative for the financial stability of the company. The overall financial position of the
company needs quick focus of the partners of the company to make strategies to enhance the
performance of the company.

4. Recommendations:
On the basis of the conclusion and the discussion of the results it is recommended for the
partners of the World of Games to concentrate on the declining performance of the company and
in order to improve the unfavourable performance of the company we recommend;

 Make changes in the sales strategies to enhance the profit for company.
 Adopt the growth and expansion strategy and find out other markets for the sales of the
company’s products and services so that to ensure the favourable and standard growth of
the net profit.
 Control the operational and administrative expenses of the company as the gross profit
ratio of the company is showing highly favourable results but the profit margin is not
much appealing.
 Make efficient use of the inventory with regular inspection for generating sales with the
inventory.
 Include more equity options in the capital structure by reducing the debt proportion so
that to attain financial stability.

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These recommendations will assist the company in regaining the lost momentum.

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 References:
 World of games. (2016), “About World of Games”, Retrieved from:
http://www.worldofgamesonline.com/. Last Access: 28 April 2016

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