Financial Management and Control
As per the given financial statements of the company for the year ended 2012 and 2013, logical conclusions are drawn with regard to the performance of the company in this FY as compared to the last year FY i.e 2012.
A variety of ratios have been calculated and used to draw meaningful conclusions and inferences to check the profitability and financial strength of the company. But ratios are not the full proof measure of the performance in certain areas such as asset utilization where assets may still be valued at historical cost or ideal ratio standard cannot be followed when company’s nature of business is entirely different from the usual one.
The revenues have increased by 15% in 2013 as compared to last year. Although, the profitability level has shown a major decline. The gross profit level has declined by almost 6.15% and net profit showed a major downfall by more than 50% as compared to last year. The basic impact on net profit ratio has come from operating profit percentage decline of more than 42%. The operating expenses have shown a major increase.
The Current ratio and Quick ratio have shown a positive movement with an increase of about 27% and 33% (approx) increase. The asset utilization ratio indicates a downfall in a single dollar earned from the assets employed. It has decreased from 1.70 to 1.42. The basic reason for the same is that assets are not properly utilized to generate optimum sales volume.
The interest coverage ratio has decreased from 9.57 to 4.34 which show that company is not in a position to earn enough EBIT so as to cover the interest cost by a large margin. Taking this fact into account the debt equity ratio of the company has declined from 0.76 to 0.65 which shows that management has decided to become more independent while dealing with funds.
The company’s working capital turnover ratio has decreased from 22 days to 53 days which shows that funds...