Download Financial Analysis Ratio - Feasibility Studies (Fairy Haven) PDF

TitleFinancial Analysis Ratio - Feasibility Studies (Fairy Haven)
File Size53.5 KB
Total Pages2
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Page 1

Accounting Rate of Return (ARR)

ARR = Average Annual Net Income ÷ Investment

Year Annual Net Income

1 616,413

2 704,019.48

3 786,035.59

4 883,228.28

5 996,101.73

Total 4,562,848.08

Average Net Income 912,569.62

Investment 5,748,150

Accounting Rate of Return = 912,569.616 ÷ 5,748,150
Accounting Rate of Return = 15.88%

With the total average net income and net cost of investment of P912,569.62 and
P5,748,150 respectively, the ARR is computed to result at 15.88% which means that Fairy’s
Haven’s project is expected to earn 15.88 cents out of each peso invested.

Test of Profitability

Net Profit Margin = Net Income ÷ Annual Sales

Year Net Income Annual Sales Net Profit Margin
1 616,413 1,656,000 37.22%
2 704,019.48 1,728,000 40.74%
3 786,035.59 1,803,600 43.58%
4 883,228.28 1,882,980 46.91%
5 996,101.73 1,966,329 50.66%

In the figure above, it shows the percentage which is an indicator that will be used to
assess the profitability of Fairy’s Haven. A net profit margin of 37.22% in the first year as
computed, 40.74% in the second year, 43.58% in the third year, 46.91% in the fourth year and
50.66% in the fifth year which illustrates satisfaction of how much Fairy’s Haven will convert its
revenue into profit.

Test of Solvency

Debt to Equity Ratio = Total Liabilities ÷ Total Equity

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