Golf Corporation
Liquidity Ratios:
Current Ratio for the year 2012 = Current Assets / Current Liabilities
Current Ratio for the year 2012 = 2,000 / 2,000
Current Ratio for the year 2012 = 1
Current Ratio for the year 2013 = Current Assets / Current Liabilities
Current Ratio for the year 2013 = 3,000 / 4,000
Current Ratio for the year 2013 = 0.75
Quick Ratio for the year 2012 = Current Assets – Inventory – Prepayments / Current Liabilities
Quick Ratio for the year 2012 = 2,000 - 500/ 2,000
Quick Ratio for the year 2012 = 0.75
Quick Ratio for the year 2013 = Current Assets – Inventory – Prepayments / Current Liabilities
Quick Ratio for the year 2013 = 3,000 – 1,000 / 4,000
Quick Ratio for the year 2013 = 0.5
Gearing Ratio:
Gearing Ratio for the year 2012 = [Long term liabilities / ordinary share capital + reserves] x 100
Gearing Ratio for the year 2012 = [2000 / 4,000 + 2,000] x 100
Gearing Ratio for the year 2012 = 33.3%
Gearing Ratio for the year 2013 = [Long term liabilities / ordinary share capital + reserves] x 100
Gearing Ratio for the year 2013 = [3,000 / 5,000 + 3,000] x 100
Gearing Ratio for the year 2013 = 37.5%
Efficiency Ratios:
Inventory Turnover Ratio for the year 2013 = [cost of goods sold / average inventory] x 365
Inventory Turnover Ratio for the year 2013 = [3000 / [(500 + 1,000)/2]]
Inventory Turnover Ratio for the year 2013 = 4
Trade receivables days for the year 2013 = [Average debtors / credit sales] x 365
Trade receivables days for the year 2013 = [[(1000 + 1500) / 2]/ 5000] x365
Trade receivables days for the year 2013 = 91 days
Profitability Ratios:
Return on ordinary shareholders' funds = [Profit after tax and preference dividend / Equity] x 100
For the year 2012 = [650 / 6000] x 100
= 10.8 %
Return on ordinary shareholders' funds = [Profit after tax and preference dividend / Equity] x 100
For the year 2013 = [700 / 8000] x 100
= 8.75 %
Return on Capital Employed (2012) = [PBIT / share capital + reserves + long term liability] x 100
Return on Capital Employed (2012) = [750 / 4000 + 2000 + 2000] x 100
Return on Capital Employed (2012) = 9.4 %
Return on Capital Employed (2013) = [PBIT / share capital + reserves + long term liability] x 100
Return on Capital Employed (2013) = [800 / 5000 + 3000 + 3000] x 100
Return on Capital Employed (2013) = 7.28 %
Operating profit margin = [Operating Income / Revenue] x 100
Operating profit margin = [1000 / 5000] x 100
Operating profit margin = 20%
Operating profit margin = [Operating Income / Revenue] x 100
Operating profit margin = [1000 / 8000] x 100
Operating profit margin = 12.5%
Gross margin profit (2012) = (Gross profit / Sales) x 100
Gross margin profit (2012) = (2000 / 5000) x 100
Gross margin profit (2012) = 40%
Gross margin profit (2018) = (Gross profit / Sales) x 100
Gross margin profit (2018) = (2000 / 8000) x 100
Gross margin profit (2013) = 25%
Investing Ratio:
Earning per share (2012) = Profit after tax and a preference dividend / number of ordinary shares
Earning per share (2012) = 650 /8000 shares
Earning per share (2012) = $ 0.08 per share
Earning per share (2013) = Profit after tax and a preference dividend / number of ordinary shares
Earning per share (2013) = 700 /10000 shares
Earning per share (2013) = $ 0.07 per share
Reporting to the bank manager:
The bank must take notice of the recent performance of the Golf Corporation, before issuing any loan to the business. The gross profit of the company has decreased by 15%. However the financial statements show a massive increase in the sales as compared to the previous year. This is a clear signal of the poor management skills which are not fully capable of controlling the ‘cost of sales’ of the company.
Another important signal is to consider the gearing ratio of the Golf Corporation. The gearing ratio for the year 2012 was 33.3%, which increased in the year 2013 by 4 percent. This increase in the gearing ratio shows that the management of the company is looking for the cheap and quick source of finance and in case of bank loan, it will increase more. Decrease is the Eearning per Share (EPS) is another important financial signal for the bank. This decrease in the EPS can be referred as the low level of trust from the current share holders and the company is looking for bank loan because it is highly probable that the company cannot collect funds through right issue effectively.
The decrease is Return on Capital Employed (ROCE) and Return on Equity (ROE) is also decreasing. Therefore, it is highly recommended to not issue a long term loan for the Golf Corporation.
