Profitability
Angi’s income statement indicates a steady growth in sales and gross income since 2008. This is an indicator that the firm’s management is effectively using the resources at its disposal. A better analysis of the firm’s profitability can be established using the ratios below:
- Returns On Equity
The returns on equity = net income / share holders equity
For the year 2012 for the year 2011
(52894) / 5,319 = - 9.94 (49837) / 45037 =-1.17
This ratio indicates how profitable a firm is for the shareholders; the Angi List Company is currently experiencing a decline in its equity ratio. The huge difference shows that the company is operating under a loss.
b ) Gross Profit Margin
gross profit margin = Gross profit / Revenue
for the year 2012 for the year 2011
111,848 / (52,894) = - 2.11 64,517 / (49,037) = -1.32
This margin explains the difference between the realized profits and the cost of production. Angi List Company has declined by 0.79. This decline can be attributed to decreased sales and increased costs in marketing. Competition in the industry has led to a decline in the company’s sale.
- Return On Revenue
Return on Revenue = Net Income / Revenue
For the year 2012 for the year 2011
(52894) / 155,799 = -0.34 (49,037) / 90,043 = -0.54
The return on revenue explains the financial position of a firm; Angi list Company has experienced an increase in the rate on revenue by 0.20, which implies that the firm is increasing its revenue base.
Sales have decreased over the years, with an increase in expenses. The company utilizes more resources in producing its products than it realizes in total sales. There is an increased competition from firms in the similar industry; this has forced the company to invest in marketing tactics, which have led to an increase in expenses. The substitutes from other competitors may have led to a decline in sales for the company.
Cash flow
Angi’s List initial cash flow generated by operating activities in 2008 was -13.14M. This figure increased in the following year by a margin of 7.53m. It, however, has decreased consecutively for three years. The investing activities also followed a similar trend with a significant decline in the amount of 22.01 in 2012. The cash flow generated by financing activities followed an irregular trend and decreased significantly from 2011 to 2012.
The cash generated by the operating activities indicates the amount of funds from Angi’s sales less the cash used in the production of commodities and generation of services. Angi’s future income is at risk given the decreases in its cash flow from operating activities. Financiers may shy away from making investment ventures because the cash it generates from sales is less than that it uses to manufacture them. The decrease in investing cash flow indicates that the company has spent a significant amount of cash on capital expenditures. The company may not be sustainable because it lacks sufficient cash to re-invest in its activities. The financing activities show that the company has numerous sources of cash flow; these sources, however, have decreased in the year 2012. The future of its finances is at stake. Angi’s List has a negative amount of free cash flow; this means that it lacks financial flexibility and the ability to settle debts.
Liquidity
Current ratio = current assets/ current liabilities
Current ratio March, 2013 = 1.04
Current ratio June, 2013 = 0.91
Quick ratio = (Current assets – inventories)/ current liabilities
Quick ratio March, 2013 = 1.04
Quick ratio June, 2013 = 0.91
Cash ratio = (cash and cash equivalents+ investments) /current liabilities
Cash ratio March, 2013 = 0.71
Cash ratio June, 2013 = 0.64
Angi’s List potential acquisitions in the future could require the company to borrow funds because it has insufficient cash to fund them. The company’s liquidity, however, is at stake given the values of the liquidity ratios; thus, it is not able to repay the debts it acquires to fund the potential events adequately. Angi’s List should look for alternatives such as looking for other sources of financing or ask their creditors to extend their repayment periods.
Financial leverage
Debt ratio is a financial ratio that shows the relationship between total assets and the total liabilities .It shows the percentage of assets of a company that can be used to pay off the liabilities in the firm. The debt ratio is evaluated by finding the total assets and liabilities of the company. The debt ratio is calculated by dividing the total liabilities by the total assets, which forms the percentage of debts to the assets. If the ratio is less than one, the ratio of the of the company is strong because the company meets the obligations i.e. liabilities using the assets. The ratio can be large if the company pays its expenses by using its equity and assets and the vice versa is true.
The type of liabilities used by the company is categorized into current and long -term liabilities .The current liabilities include the accounts payables and other stated liabilities. The long-term liabilities involve the long-term debts and deferred charges. The company’s long term debts has steadily increased from September 30th 2012 to 30th June 2013 .The firm current liabilities decreased drastically from the period 30th September 2012 to 31st December 2102 and then increased rapidly until 30th June 2013.
Assets liabilities
The company’s total assets as at: 30th June 2013 117,783 123,646
31st march 2013 108,264 108,364
December 31st 2013 96,229 90,910
September 30th 2012 101,789 100,076
Totals 424065 422996
The debt ratio is, therefore, = total liabilities/total assets
=422996/424065
=0.9975, the ratio is less than one which shows that the company can be able to meet its obligations .the assets that are financed through debt are included in the percentage of 0.9975 debt ratio. The debt coverage ratio of a company also termed, as the debt coverage ratio is a significant financial ratio. It is the ratio, which provides a comparison of a company is operating flow of income to the total debt. The ratio entails the amount of cash that is available for repayment debt’s interest, principal and the lease payments (Kapil, 2011, p.121)
The fixed coverage ratio is a ratio that shows a company’s ability to pay off fixed expenses such as interest expenses and lease payments.
Fixed charge (before tax) +interest
EBIT = 13855+7469+2911+18020
(42255)
Total long term liability = 59500
Interest expense = 464+463+476+467
= 1870
(42255) +59500
59500+1870
The fixed charge coverage ratio = 17245
61370
0.2810
The ratio shows that the company is going to assume the payment of debt in the future because the ratio of payment is less than one.
References
Kapil, S. (2011). Financial management. Noida, India: Pearson.
