Analysis-of-Financial-statements

ANALYSISOFFINANCIALSTATEMENTSNameJiachengCaoPastandlikelyfutureoffinancialperformanceandfinancialpositionToanalyzethepast,presentandfutureofPulsinsfinancialperformanceandpositionwehavetousetheirfinancialstatementsandthefinancialratios.Thefirstratiosinconsiderationaretheprofitabilityratios.Thecompany’sgrossprofitmargin(GPM)standsat54%,andthenetprofitmarginNPMstandsat25%asat2013.TheGPMhasbeenkeptbetweentherangesof50%to60%oftheyear2008.Itisduetothehighlevelsofcostofsalesarisingfromtheuseofhighandnewtechnologywhichresultsinhigh-qualityproductsandthushighersaleslevels(Subramanyametal.,2009:34).TheNPM,however,hasbeenrisingfrom5%to25%in2008duetothecompany’sabilitytocontrolitsexpenditure.Theprofitabilityratiosareexpectedtoremaininthesametrendbecausethecompanyhadafivetimesadministrationandsellingexpensesin2013asthatof2012.ExpansionofbusinessandexportationofproductstoGermanyexplainstheincreasedcosts(Robinson,2012:86).Theacceptedliquidityratiosforbusinessesarealways1:1or2:1.Thefollowingtableshowstheliquidityratiosofthecompanyovertheperiodbetween2006and2013.DATE2006200720082009201020112012VALUE0.700.601.780.951.250.950.92Theratioshavebeenontherisefrom2006to2008.In2009,theyfellandroseagainin2010.In2011,itfellto2012.Theforecastindicatesthattheorganizationwillmaintainafavorableliquidityratioaboveonebyensuringthatitreducesthevalueofitstradecreditorsthusraisingtheabilityofthecompanytomeetitsshort-termobligations.ThecurrentratioofthecompanyDate20052006200720082009201020112012Values0.350.951.032.241.281.641.411.41Thecurrentratiosarepartoftheliquidityratios.Ithasbeenontherisesince2005toapeakin2008.Howeverafterthatithasbeenfluctuatingbutmaintainedatarateabove1andabovetheindustryaverage.Thetrendisexpectedtobemaintainedacrosstheperiod.Themanagementefficiencyratios,theinventoryturnoverperiodanddebtordayshaveconstantlybeenincreasingbyonemonthsince2008.Theresultisalongoperatingcashcycle(OCC).ThelongertheOCC,thegreaterthefinancialrisksacompanyencounters.Theforecastforthe2014financialyearswillhavetoberaisedto71daysbecauseofthetrendofincreaseintheturnoverperiods.Thegearingratiosofthecompanywerehighatthestartasshowninthetablebelow.Theylaterreducedduetotheabilityofthecompanytofinanceitselfandreducethedebtfinancingfromloanstakenfrombanks(Petersonetal.,2012:98).Apartfromthehighestinterestcoversin2011of92timesduetonoloancoverthatyear.Thecompany’sabilitytopayitsinterestshasremainedatabove20timesovertheperiod,andtheforecastholdsthatthetrendtocontinuetothenextfinancialperiod.DATE20052006200720082009201020112012VALUES-153.11-314.27-534.1477.82313.80146.89228.57218.95Thecompany’searningspershareratios(EPS)havealsobeenincreasingfrom£6in2008to£2500in2014.Thetrendisexpectedtobecontinuingtothenextperiodbecausethevaluepersharewillberisingastheresultofincreasedconfidenceinthemanagementoftheownersofthecompany.Workingcapitalanalysis200720082009201020112012Tradedebtors70,945161,719271,539510,306608,5881,035,955Stock50,58964,680101,231168,065326,070633,329Tradecreditors117,833140,092303,537427,991715,7771,307,765WorkingCapital3,701173,35186,068273,924291,040531,994Theworkingcapitalhasindicatedariseinthevalueofthetradecreditorsanddebtors.The2010to2012valuesareindicatingastrongabilityofthecompanytoretainmoreoftheircustomers.Thetradecreditorsaremorethanthetradedebtorsbecauseofincreaseddemandandsalesfortheproduct.ThetrendisforecastedtoremainthesameduetoexpansionandthecompanyexportingitsproductstoGermany.BenchmarksThebestbenchmarkforthecompanyisInnocentSmoothiesInc.becausetheyhaveasimilarnatureofproductsandhistory.InnocentisgrowingthroughcoordinationwhilePulsinthroughdirection.IthasgivenPulsinachancetolookaheadandlearnfromthemistakesandachievementsofInnocentbecauseInnocentisstandingmoreestablishedgrowthprocess(Wahlenetal.,2010:56).PulsinhasdonewellinmaintainingabetterprofitabilitythanInnocentinthebeginning.TheNPMofInnocentrangedbetweennegativesandzerowhilethatofPulsinwasbetween20%and25%.ItwasbecauseInnocentdidnotexercisecontrolovertheirexpenseswhilepulsingdid.Itwasalsobecauseinnocent’sshareswereboughtbyCoca-ColawhilePulsinkeptitsharesbetweenitsthreedirectors.AfterCoca-Colatookoverthebusinessin2009,therewasslowdecision-making,unlikePulsinwherethedirectorshavecontrolofthebusinessandmakefastdecisions.Thegearingratioswasabove100%untilwhen2009becausethebusinesshadencounteredproblemsinabilitytopaytheirdebts.Pulsinexperiencedthesameproblemsbutusedtheoptionstore-investratherthanborrowingsfrombanks.Theyalsomadeuseofcrowdborrowingswhoseinterestrateswerelowerthanthoseofthebankbyabout3%to5%.Pulsin,however,hasbeenexperiencinglowerperformanceintermsoftheOCC.InnocenthasahigherOCCandlowerinventorydaysaswellasdebtordays.PulsinshouldavoidusingmorecashfrequentlybyensuringitimprovesitsOCClevelbyensuringthedebtorandinventorydaysarebelow30days(Kopczynski,1996:37).OtherfactorslikeimageprotectionandcorporateresponsibilityhavehelpedInnocentgainmoresalesthanInnocent.Itisbecauseitallocatessomepartoftheprofitstoenhancethecompany’sreputationthusincreasingthecustomerconfidence.Pulsinshould