Decision Making Essay

2819 words - 12 pages

Aim of the report ------------------------------------------------------------------------------ page 3

Methodology ----------------------------------------------------------------------------------- page 3

Profitability ------------------------------------------------------------------------------------- page 4

Efficiency --------------------------------------------------------------------------------------- page 4

Liquidity ---------------------------------------------------------------------------------------- page 4

Financial Gearing ------------------------------------------------------------------------------ page 4

Investment ...view middle of the document...

Methodology

* Analyses the working capital problems faced by the company and presents recommendation to the directors to improve the company’s position.
* Evaluates the proposal that Ventura plc, the venture capitalist, should invest in CFT Ltd.
* Evaluates four alternative sources of external finance.

Financial analysis expresses the relationship among selected items of financial statement data. A ratio expresses the mathematical relationship between one quantity and another. The relationship is expressed in terms of a percentage, a rate, or a simple proportion. Now we are going to ratio analysis about CFT Ltd.

Profitability

The gross profit margin has fallen since the previous year by 0.75%. One of the possible reasons for this is selling price may have lowered or cost of goods sold may have increased. But 2011 and 2012 financial year business gross profit is not quit difference. Operation profit margin was quite good for 2012, the operation profit margin increased by 1.1% which shows the efficiency of operating (i.e. production and selling) activities of CFT Ltd.

Return on capital employed (ROCE) has been improved by 16.5% to 18.1% in 2012. In this case, return on capital employed sourced from ordinary shareholders and it also sourced from all long-term supplier of capital. Against 2011 ROCE of CFT Ltd compares very good. On the other hand ROSF (Return on shareholders’) has gained by 3.4%, ROCF increased by 0.8% compare ROCE in 2012. So, we can easily say that, ROCE and ROCF both of them is very secure field of investment.

Efficiency

Efficiency ratio purpose to measure the company how is receivable and other efficiency and assets. CFT Ltd has got some efficiency ratio. Compare 2011 in a year of 2012 debtor collection period was too long which indicate the year trade receivable and credit sales was big amount or all was eventually forced to sell to customers on long credit terms. The average settlement period for trade payables has improved by 4 days. It is also showing goodwill of creditors as average trade payable period for private companies is 52days.

The average inventories turnover period increased 77days to 134 days in 2012. Sales revenue to capital employed was almost same for both years. But the net asset turnover has increased by 57 days. In 2012 its take more times from the investor. But in 2011 it came slower and decreased the times. That figure shows the possibility of borrowing and needs to be look after.

Liquidity

Acid test that Current assests excluding inventories
Current liabilities
This section explores some ratios related to the liquidity (i.e. cash or near-cash position) and fund management of a business. It’s related with short-term asset with short term liabilities. Acid test of 2011 and 2012 is not showing much variance and current ratio in 2012 was 1.3: 1
It is important to remember that these ratios take a static view.

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