BB’s Salad Palace is a salad chain that is situated in the Tri-state. It operates regionally, having a direct competition with salad works. The company specializes in the delivery of products that give a broader range of salad products at relatively cheaper prices. The company has attained success in the local market with the prospects of expanding its market, and this is only possible with the infusion of capital. The companies intends to become public so as to expand on the network of access of the needed funds for the expansion of its market. It will enable the company to achieve its goals efficiently. Through the increment in funds, BB’s Salad Palace will increase its advertising base which will consequently increase sales. The fund will also allow the opening of new stores to the northwest and south. On other side, if the company goes public, it will have to incur high costs of financial reporting and auditing. This is a requirement by the Securities and Exchange Commission. The influence of the stockholders after it has become public will also require the company to make annual financial reporting and auditing.
The managerial positions crucial to the company will include the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Chief Operating Officer (COO). The CEO will be the top director of the company guiding the company towards its expansion. The CFO will be in charge of the all the financial requirements of the company. The COO will oversee the day to day running of active stores, and will also be ensuring the level of waste is low. The three managers will be the top management of the company for final decision making. They will be assisted by a number of non-executive staff members of the company. Sarbanes Oxley has put the company on pressure to add more executive position to allow for clear separation of powers and duties in the company.
The liquidity ratios discussed this company is the current and quick ratios as discussed below.
Current Ratio
For the three years period (2010 – 2012), the company has been meeting its short term liabilities given the current assets that are available. In all the three years, the ratio has been above one. During the current fiscal year (2012), the company’s current ratio has gone down. This is attributed to the increase in both current assets and short term liabilities. The current assets increased by 3396, which is a 7.3 percent increase, while the short term liabilities increased by 1133, which represents a 9.06 percent increase from the previous years, 2011. This trend in the change in current assets and short term liabilities is a good stance for the firm as it shows that the firm is able to get short term funds for its projects, and as well meet the short term liabilities without exhausting the current assets that are available. However, this could also be warning as it shows that the current debt for the firm is going up.
Quick ratio
When the quick ratio is above one, it indicates that the firm can meet its short term requirements using the available liquid assets. The firm’s quick ratio for the three years has been above one, meaning the firm has had a good liquidity position. For the past three, the current year has the lowest quick ratio. Meaning that the current debt has gone up. The management should account for it on a good course, or else the firm will be running into current debt.
Profitability ratios
Profitability ratios indicate that a firm has the potential to gain earnings, given its equity, sales and assets. The profit margin and operating margin for this firm are discussed below.
Profit margin
The profit margin for the firm has been on a decreasing trend for the past three years. This means that the amount of revenue that has been maintained form the earning in the three years has been going down with the current year recording the lowest. The decrease in the profit margin for this firm is attributed by the increase in costs relative to the sales made. The net profit increased by 38 while the net sales increased by 561. The increase in profit is lower due to the increase in costs.
Operating margin
When all the variable costs for the firm are paid, the revenue that is left over is the operating margin. The operating margin for this firm has been going down for the past three years. The decrease in the operating margin is due to the decreasing trend in earnings before tax as compared to the net assets.
Debt Ratios
The debt ratios are responsible for the firm’s leverage for a particular time period.
Debt to Equity
The debt to equity ratio for the firm has been on an increasing trend from 2010 to 2012. This shows that the growth of the firm can be linked to the funding from debt with 2012 having the highest funding. This can be a positive thing for the firm as long as the higher revenue created is able to service the cost of interests and other financial costs, and still makes a good net revenue.
