When looking at financial performance, the following observations can be made.
Sales: sales volume is based on successful price competition by control of operating expenses (no sales staff employed) and quantity purchases of materials at substantial discounts. One might expect that this would be correlated to a strategy of quick sales with a focus on quantity rather than quality. However, the circulation speed of the inventory is rather slow (2009: 8,350,000/(1,280,000 + 1,670,000/2)= 5,66. 2010: 9,850,000/ (1,670,000 + 2,280,000/2)= 4,99. 2011: 13,280,000/(2,280,000 + 2,920,000/2)= 5,11). Also, the inventory days are higher than the industry ratios (2009: 1/5,66 * 365 days= 64,5, 2010: 1/4,99* 365 days= 73 days, 2011: 1/5,11 * 365 days= 71 days).
EBIT: R 570,000 (2009), R 700,000 (2010), R 1,050,000 (2011). Almost no overhead and fixed costs so main driver for future increase in EBIT is increase in sales and control of variable costs. Sales prospects are considered favourable according to the bank (refer to question 6) but how does this relate this to a relative shortage of funds? I think this is due to tension between investment in working capital and increasing sales volume. To be elaborated.
Debt/equity: looks quite OK compared to industry ratio (2009: 1890 vs sector 1500, 2010: 2141 vs 1764, 2011: 2510 vs. 2412). To be elaborated. Current ratio: check why current overdraft is not included in current liabilities. This impacts current ratio figure negatively. Quick ratio:not good. To be elaborated and funded with calculation.
Conclusion: after quick-scan; too much money in inventory and assets, shortage of cash-on-hand. Mismatch between debtors’ days and creditors’ days does not contribute either, particularly since creditors’ seek extra comfort. To be elaborated.
2. Again, shortage of cash-on-hand. Large increase in accounts...