Accounting for business decision Assignment Example | Topics and Well Written Essays - 1000 words

Accounting for business decision - Assignment Example Every investor is concerned about the security of his wealth. An investment is made after considering a lot of factors such as risk and return on investments, the value of an asset or a company and other factors both internal and external. Internal factors are those over which a company has regulatory authority while external factors are those over which a company has no control. Ventura PLC proposes to invest in the CFT; the evaluation of their proposal involves ascertaining the viability of CFT Company. Therefore, a ratio analysis on the company is imperative. Ventura PLC as an investor would be interested in the following: earnings per share ratios, return ratios and gearing ratios (Kumar 2009, pp. 95-115). This ratio shows returns to the shareholders that every share held generates. The ratio is obtained by dividing a company’s earnings after tax by the number of ordinary shares, within a financial period. Concerning CFT, in the year 2011, the company’s EPS = (EAT/Shares) = (410,000/2,500,000) = $ 0.164 per share, whereas, in the year 2012, the Company’s EPS = (547,000/2,500,000) = $ 0.219 per share. A time series analysis of the EPS between the two years indicates an increase in the EPS in 2012 due to an increase in the company’s earnings after tax. The trend experienced is good news for investors since they stand a chance of earning higher returns in the future. Using this short analysis, Ventura plc’s investment proposal is supported. The reason for the support is that the CFT Company promises a future increase in reward to investors (EPS) (Kumar 2009, pp. 95-115). Return on equity – is obtained by dividing a company’s earnings after tax by total shareholder’s equity (EAT/Equity). Concerning CFT, its ROE in 2011 and 2012 are calculated as (410,000/2650, 000) = 15.5% and (547,000/2,897,000) = 18.9% respectively. This ratio indicates the proportion of the net profit attributed to shareholder’s equity. The rate of return