Financial Analysis Task 1 Western Governors University Horizontal Analysis of Competition Bikes, Inc. In a horizontal analysis of years seven and eight it appears that though there was a reduction in net sales the cost of goods sold and gross profit all reduced at similar rates which indicate that as sales dropped overall materials cost did as well and that inventory was well managed. Selling expenses also change consistently which indicates the company made smart decisions around selling their products as demand declined. Lastly, the long term liabilities reduced which shows that the company did not take out further debt to finance operations. A couple of points to look at include the fact that utility expense increased 11% year over year.
1. 2011 2012 ROCE = 30% ROCE = 34.58% Gearing = 32% Gearing = 28.2 % Asset turnover = 4.83 Asset turnover = 2 .38 Appendix A gave me a overall view of superstyles profitability and asset turnover. In 2012 superstyle has increased its return on capital employed by nearly 5 %. This is an advantage for the business, as it states that the business gets more money back from their money invested in 2012. Not only the ROCE has improved, the gearing ratio has decreased by 4%.
The fact that they are significantly under the industry average indicates that Elker is more effectively converting their inventory into profit. Additionally their asset turnover ratio has been steadily increasing for the past few years, save for a slight drop in 2008. If a company can generate more sales with fewer assets it has a higher turnover ratio which tells it is a good company because it is using its assets efficiently. So in quite an interesting financial scenario Elker can manage their inventory and receivables quite well, but suffer when it comes to turning a profit and handling their obligations and
Sadly, this company had a lot of factors working against them when the quarter came to an end. The reason that companies budget is to help ensure that money is being spent properly and to help track where future profits and losses may occur. The unexpected decrease in revenue can be factored into many different areas. One main factor of loss is due to the internet being down for 7 days causing the company to potentially have lost 7.7 percent of it’s customers and an estimated $10,00 in profit for this quarter. Factor number two is the company offering free shipping to orders over $100.
Ceres is a service company and they carry fewer amounts of inventory compared to a typical manufacturing company. This is an explanation for the lower percentage increase between revenue and inventory. The percentage difference between account receivable and sale revenue is about 20%, this shows that Ceres Company has been very effective in collecting funds from debtors. Additionally, it can also be explained that debts from prior periods have also been collected. What have been the key factors in the company’s growth?
Graph 3.1 Evolution of the Dividend Yield. From the graph 3.1, we can observe that the dividend yield (Dividend/Share Price) decreased sharply between 1982 and 1989. That is, the dividends did not increase as quickly as the stock price. However, this is justified by the fact that the earnings per share remained quite stable, while the stock price was increasing. This would justify the decreasing dividend yield.
Ratios can tell if the business is using its assets appropriately, and if liabilities of the company are well-managed. It shows whether a business can invest in more capital, or if there is room for business growth. It shows whether a business will be able to pay off its debts or their short-term expenses or their daily expenses. It basically shows the strength and weaknesses of the business. It helps for forecasting on making certain financial decisions.
By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company. By extension, it can help determine the decision whether to cancel or invest in project. Moreover, the cost of capital can help investors to determine the performance of the top management. With the intention of compare the ability of financial managers based on evaluation between the
Audi's global sales rose 8.3% to 1.58 million vehicles in 2013 however despite the increase in revenue, the net profit fell 7.7% ($5.57billion) and the operating profit margin fell to 10.1% from 11% the previous year. Based on this one could assume Audi is experiencing diseconomy of scale. But when you dig deeper into their situation the reasons for a lower net profit is not because of a “per-unit” cost of production which would truly mean they are operating as a diseconomies of scale. The true reasons appear to be because of their expansion investments. As per the article Audi “warned that profit would be hit by investment in new models and tougher climate regulation”.
The firms stock has declined $2 per share over the last nine months but the firms profits have been rising. Shareholders normally receive what is called cash dividends and from the text the firm has never paid a dividend in 20 years. From what is written in the first paragraph, shareholders wealth is reducing during this time, and this shows that there is an agency problem. With the management team their actions show that pollution controls will show a profit maximization try, which means the managers are trying to maximize his or her salary, instead of the attempt to maximize shareholders wealth, the stock price. Evaluate the firms approach to pollution control.