Q1: Why has Guna run out of cash? (Using the net profit as a percentage of sales, gross margin, operating expenses, interest expense, dividend payment in past year and in 2012 in Exhibits 1 and 5 to backup your analysis).
Guna Fibres, Ltd. has run out of cash simply because of poor management and they don’t have an adequate amount of cash flow from operations. Guna does not have enough cash to support day-to-day operations and has become very dependent on a line of credit. As seen on the income statement, their increasing operating expenses, increase in costs of goods sold, and increase in interest expense, Guna Fibres, Ltd. is no longer able to remain solvent. Among other reasons, such as large dividend payouts and too much inventory on hand, Kumar needs to be more aware of her decision making to change her current financial practices.
…show more content…
In this two-year period, gross sales had a 17% increase while COGS increased by about 21%. If this rate keeps up, Guna can be sure to have a negative net profit in the coming years. So, despite their growth in sales from 2010 to 2011, Guna’s net profit decreased by an almost 30%. That is a significant drop relative to their increase in sales. By looking at the net profit as a percentage of sales, in 2011 the net profit was only 3% of sales as compared to about 6% in 2010. This should be a big concern and a cause for
Sales growth after 2000 were only 9%, which the average annual sale growth rates range from 10% to 30% in their industry. The lack of cash is explained by the current liquidity ratio
7. Sales had dropped in 1993 but operating profit margins increased due to increase in
The Corporation has sustained losses and negative cash flows from operations since its inception. The Corporation is exposed to liquidity risk as it continues to have net cash outflows to support its operations.
In Be Our Guest, Inc.’s scenario, we can see that the total cash flow from operations increased from 1995, $168,000, to 1997, $229,000, by 37%. This increase to the CFO is a result of a few different accounts. Although net income decreased 22.8% from 1995 to 1997, because depreciation increased 25.8% from 1995 to 1997, the total net income adjusted for non-cash charges increased by 4% from $250,000 to $259,000, from 1995 to 1997. The changes to Accounts Receivable over the years reduce cash flow from operations by $75,000, $46, $42,633 in 1995, 1996, and 1997, respectively. These increases in accounts receivable cause the cash flow from operations to decrease because Be Our Guest, Inc. collected less money from their customers compared to the sales. Whereas, the changes in Accounts payable & accruals of, $5,768, $19,063, and $14,859, in 1995, 1996, and 1997, respectively, caused the cash flow from operations to increase because Be Our Guest, Inc. is paying their suppliers less, indicating they are retaining more cash for
Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are increasing and more inventory is left over each year causing the return on sales to decrease. For 1995, it was 1.7% which is less than the average of 2.44% but is a lot higher than the bottom 25% of companies as seen in exhibit 3, which actually have negative sales return of 0.7%. Return on equity is increasing each year and at a higher rate than industry average. In 1995, it was 20.7%, greater than the average of 18.25% and close to the highest companies in exhibit 3, of 22.1% showing that the return in investment in the company is increasing, which is good for the owner.
By dividing net sales by net fixed assets, an investor can see if the company is using its fixed assets efficiently. Since fixed assets are often high price items, it is important that a company is using the fixed assets well; the higher the ratio, the better. Since we are lacking information on what type of industry this is, it is hard to put to much significance on the ratio. Since the ratio is similar, even a little higher, than the competitor, it could be safe to say that this is normal for the
The main contributing factor to the decline in the return on stockholders’ equity (25.37% to 8.73%) was the decline in the profit margin (11.79% vs. 5.08%). The decrease in asset turnover (1.11 to 1.00) made a small contribution to the decline, as did the decline in the debt ratio (48.4% to 41.8%).
Ann Inc. has been displaying weak financial growth. The company reported net sales in January 2015 (for the previous three months) of $647.4 million and in January 2016 reported net sales down by 2 percent from the previous year at $637.5 million. (Ascena Retail Group Inc. Report) The decrease in performance could have a negative impact on the growth of the company, and decrease investors’ confidence as well as customers.
Cash Ratio = Show on balance sheet =151,750 + Current Liabilities = 198,849 = 305.599 / 2= 1.52. However, this is what Aeropostale Corporation started with at the beginning of 2015. This late you know the Corporation has a great loss of income by the end of 2015. Current Ratio = loss current asset 213.138 / current Liabilities 3.944 = -0.56. Aeropostale company ratio is at -0.52 and the company has loss 56. Cents per dollar. This is not looking good for the company finances. Total Loss Current Ratio = Total Assets 206.458 / Total Liabilities, 247.775= -00.1. This showing that Aeropostale has exceeded way over their limited they are at $70.0 million for year of 2015. Their minimum availability covenant by $ 198.6 million they need to generate cash as soon as possible. Quick Ratio = Loss Current Liabilities, 213.138 + Loss Net Credit Sale, 40.808 + Account payable = 303.428 / 2 = -1.51. This mean the that company has no available assets to cover
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financing have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business. Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a person or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors.
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
The first analysis will be on Verizon. The current ratio and the debt to equity ratio both improved in 2006 when compared to 2005. However, the net profit margin dropped from 9.8% to 7.0%. What does this tell us as investors...
The 3 percent decline in sales causing a 21 percent decline in profits can be attributed to the identification of the accounting concept of operating leverage. Operating leverage is what business managers apply to boost small changes in revenue into sizable changes in profitability. Fixed cost is the force managers use to attain disproportionate changes between revenue and profitability. Therefore, when all costs are fixed every sales dollar contributes one dollar toward the potential profitability of a project. Once sales dollars cover fixed costs, each additional sales dollar represents pure profit. A small change in sales volume can significantly affect profitability (Edmonds, Tsay, & Olds, 2011). So, therefore, if sales volume increases,
ABC LTD COMPREHENSIVE INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 NOTE 2012 Revenue 2 828,500 Cost of sales 3 (460,000) Gross profit 368,500 Other income 4 2,500 Operating expenses 5 361000 Profit before income tax 10000 Income tax expense (30%) 3,000 Profit for the year 7000 Other comprehensive income change in revaulation surplus 38500 Other comprehensive income for the year, net of tax 38500 Total comprehensive income for the year 45500 ABC LTD STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2012 NOTES 2012 ASSETS Current assets Cash and cash equivalents 6 100500 Trade and other receivables 7 45,200 Inventories 8 87700 Other current assets 9 7000
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.