Cis11 Assessment 1

Only available on StudyMode
  • Download(s) : 1
  • Published : March 28, 2013
Open Document
Text Preview
Safety Styles Pty Ltd Financial Information
Ratios and Financial Data
Profitability201020112012
Return on assets30.2%31.46%31.48%
Return on equity32.62%34.02%34.07%
Gross profit margin57.55%57.51%57.93%
Net profit margin16.04%13.90%14.35%
Efficiency
Asset turnover (times)1.882.262.19
Inventory turnover (days)95.6290.5595.10
Accounts receivable turnover (days)50.3742.6645.16
Liquidity
Current ratio4.124.13.91
Quick asset ratio2.462.452.21
Capital Structure
Gearing ratio2.372.362.54

Safety Styles Pty Ltd Application Decision
It would be my recommendation to grant Safety Styles their application for additional finance. Profitability:
Safety Styles Pty Ltd has demonstrated in is able to generate and increase its profits as demonstrated through the healthy Gross and Net Profit Margins. It should be noted during this three year period Safety Styles Pty Ltd has maintained and increased the Gross Profit margin, Safety Styles Pty Ltd has also maintained a healthy Net Profit Margin. Although dropping slightly the second year they have managed to improve this in their third year increasing their overall profitability Safety Styles has also increased both its Return on Assets and Return on Equity, this demonstrates the ability of the company to efficiently make use of its assets and equity which ultimately reduces requirements for more funding and reduces cost making better use of what they currently have. Efficiency:

Safety Styles Pty Ltd appears on average over the last three years to be improving its efficiency to make better use of their assets and turning over their inventory. Safety should also focus on this area and strive to improve their efficiency. Whilst the values may seem quiet higher their total sales amount has raised which may not be taken into account with averages. Safety Styles may need to revisit their inventory strategy as their turn over period is quite high; this would be a benefit for them in the long term by having quicker access to cash for investment in other assets. They should also pay attention to their Accounts Receivable Turnover and aim to reduce this. Liquidity:

Whilst Safety Styles Current ratio and Quick asset ratio is declined they are both still very healthy numbers. Safety Styles non-current assets have been increasing annually. They may want to pay attention to reducing their inventory levels and accounts receivable to give them more cash and the opportunity to invest into non-current assets or reduce their liabilities as they currently has a low level of cash compared to inventory and accounts receivable. This will make the company more “liquid” in the short term. Safety Styles also has a very healthy quick asset ratio compared to the industry standard of 2. It should be noted that Safety Styles currently do not have a high level of liabilities and seem to be maintaining their levels of dent in relation to their assets Capital Structure:

Safety Styles currently have a very low gearing ratio and are using retained earnings for most of their financing. External sources of financing will be a benefit to Safety Styles to help them grow and invest in additional non-current assets. Executive Summary

Safety Styles appear to be utilizing their assets and equity very well currently to help produce their profit and maintain both healthy gross and net profit. If this is maintained they should be able to repay their long term liabilities and possibly improve their current asset liquidity.  

Appendix
Formulas
Return on Assets = (Net profit before interest and taxation / Average total assets) x 100 •Return on Equity = (Net profit after tax and preference dividends / average ordinary shareholder’s funds) x 100 •Gross Profit Margin = (Gross profit / sales) x 100

Net Profit Margin = (Net profit before interest and taxation / sales) x 100 •Asset Turnover Ratio = ( Sales / Average Total Assets)
Inventory Turnover = (Average...
tracking img