Accounting Information in Decision Making

FINANCIAL ANALYSIS OF HUBSPOT INC
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Liquidity ratios
The liquidity ratios refer to a list of ratios that seek to evaluate the ability of the company to meet the current liabilities and other current needs that may fall in the short run with ease as and when they fall due (Thuram, 2007). This ratio’s include the current ratio, quick ratio (acid test ratio), receivables turnover ratio and the inventory turnover ratio.
The current ratio of Hubspot Inc. for the year 2016 is 1.38 whereas the quick ratio is 1.20. The current ratio shows that the company’s liquidity is above the recommended level of 1 can be interpreted that the company is able to meet its current liabilities using current assets (which includes inventory) with required ease. The quick ratio also affirms the company’s ability to meet the current needs that arise using current assets excluding inventory.
The company’s receivables turnover ratio was 8.45 which means that the company turned accounts receivable into cash 8.45 times for the 12 months that it operated. This also means that the company’s accounts receivable were collected in an average of 43 days in the whole year that the company operated (365 days /8.45 = 43.19 days).
The inventory turnover ratio that measures the number of times the company is able to convert its inventory into revenue (Kimmel et al., 2009) cannot be computed as the company did not have any inventory for the period ended 31st December 2016.
Profitability Ratios
Profitability ratios are ratios used to evaluate the profitability of a company.

These include the Asset turnover, Profit margin, Return on assets and the Return on common stockholders’ equity.
The asset turnover ratio of Hubspot Inc. is a ratio that measures the ability of the company to use its assets effectively to generate more profits (Booker, 2016). The ratio is also used to measure the profitability over year to year. The asset turnover ratio of Hubspot Inc. for year 2016 was 1.13 whereas that of year 2015 was 0.92. From this analysis, asset turnover ratio of year 2016 shows that the company’s sales and the revenue were close to ratio 1:1. Year 2015 had a lower turnover ratio which shows that the company increased its efficiency in generating higher sales in year 2016. As it is the case, lower turnover ratio signals inefficiency in using assets to optimality.
Profit margin is a profitability ratio that measures the relationship between the company’s revenue and the net profit. This is important as it shows the company’s profitability. The profit margin for Hubspot Inc. is (16.81) for year 2016 whereas year 2015 was (25.31). Though the company recorded a negative profit margin, the profit margin increased in year 2016 which shows growing profitability of the firm into the future.
The Return on assets of the firm for year 2016 was (18.98) whereas that of year 2015 was (23.30). This shows that the company’s profitability is increasing signified by increasing ROA into the future.
The Return on Equity for the firm was (37.90) in year 2016 and (39.63) in year 2015. This signifies increasing profitability into the future which can be cited as increasing ability to generate profits per unit of $1 investment in equity shares.
Solvency ratios
Solvency measures firm’s ability to meet the long term debts (Mohana, 2011). This will be measured using the debts to total assets as well as the times interest earned.
The debt to total assets for year 2016 was 141/260 (54%) and year 2015 was 99/220(45%) which shows that the company is increasing its debt level. The times interest earned for year 2016 was (168) whereas that of year 2015 was (245). The two ratios show growing ability of the firm in terms of paying of its debts into the future.
Management Decision Making
The information provided is important for the company in decision making such as dividend policy, improving company efficiency, improving debt levels and improving profitability.
Company’s performance
The company is struggling to post positive profits as the net income is negative over year 2015 and 2016 but is improving its profitability position into the future as seen from the profitability ratios. The liquidity of the firm is reducing into the future as seen from the liquidity ratios whereas the debt position is improving though debt level is increasing into the future as ability to pay debts increases.
Recommendations
The company needs to increase its profitability by increasing efficiency to reduce costs which will ensure the net income is positive. The debt level is increasing into the future which will need to check to ensure gearing level is reduced as well as the liquidity ratio which is reducing into the future.
Ethical considerations
Some ethical considerations that the company may need to check include whether to stimulate profitability by introduction of profit incentives that will ensure the managers are able to work hard and ensure company is profitable.
References
Mohana, R. (2011). Results Financial Statement Analysis and Reporting (p. 158). PHI Learning Pvt. Ltd.
Booker, J. (2006). Financial planning fundamentals (pp. 2.25). Toronto: CCH Canadian Limited.
Kimmel, P., Weygandt, J., Kieso, D., Trenholm, B., Irvine, W., & Burnley, C. (2009). Financial accounting (p. 270). willey.
Thukaram, Rao M.E., (2007). Management Accounting (p. 87). Willey Publishers.