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Profitability of the company
The profitability of the company is determined by the benchmarking of different returns on the total sales of the company. Some of the basically used methods here are gross profit margin, net profit margin, revenue per employee, and other margin ratios in company’s income statement and balance sheet. The revenue of company is in increasing trend. Approximate revenue of $29 million reached mark of $37 million in 2011, and reached the level of $50 million by 2012. There is significant growth in the revenue model of company as it has been increasing trend for the given periods. Along with revenue there is increment in gross profit of the company starting from range of approx. $10 million to $12 million. On contrary, the gross profit margin of company is in the decreasing trend. The trend has been 35%, 30%, and 25% in respective three years from 2010 to 2013. The net income of company has been in increasing trend. The net income level was $8.5 million in 2010, $9.7 million in 2011, and $10.7 million in 2012. The trend has continuous growth from period of 2010 to 2013. Despite of this growth, there is declining net profit margin. The margin has declined from 29% to 25% and then to 21% in third year from 2010 to 2012. This trend states that the increase in both the profit margin of the company is because of the increment in revenue rather through the operational efficiency. Thus, despite of growth in total figure, there is declining trend in the gross profit margin and net profit margin of the company. The result is further supported by decreasing trend in return on assets and return on equity for the given period of time. The decline here is proportional to the decline in net profit figure of the organization. Similar decline is in the level of return on investment and EBITDA margin. The revenue per employee has been declining despite of rise in revenue level. This indicates that the company has declining management efficiency ratio indicated by declining per employee revenue of the firm.
Liquidity of the company
Liquidity position of company refers to the ability of company to meet its short term obligations or meet its short term liabilities with short term assets. The major indicators considered there for the analysis are current ratio, quick ratio, cash flow from operations, and quality of income. The company has high liquidity position compared to the normal standards to benchmark the positions. The quick ratio has been higher to normal standard and is in decreasing trend since the given period. Current ratio also followed the same direction and dimension. This states that company has excessive unused liquid assets that have remained idle within company. Such asset could have been reinvested in order to generate better income condition for the company. On the other hand, the significant portion of total asset is covered by current asset which mean that the company has excessive investment in working capital i.e. current asset that has reduced the working efficiency of organization in terms of generating more profit and return on its capital base. The company also has increased cash from operating activities. The trend has been $11 million in 2010, $14.5 million in 2011, and $16.6 million in 2012. This indicates that the company has increased its cash flow from all of its operational activities.
Solvency of the company
Solvency ratio generally measures the riskiness attribute from the capital structure of the firm. Debt capital is associated with the fixed expenses obligation thus, it is believed that excessive use of debt increases riskiness of the firm to meet the fixed income liability. The company has reduced its financing from long term debt in 2012 compared to 2011 by one percentage. On the other hand, company has increased their total debt compared to equity by one percentage in 2012 as compared to that of 2011 and 2010. Here, it indicates that the company has reduced its financing through long term debt and has shifted it to the long term debt. This has added risk for the company in terms of the asset liability mismatch. Since the company has financed through the short term financing, the payment time for the obligation has relatively been lower. This adds risk to the corporation in order to meet the cash requirement in such a short period of time. The company has mismatch between the ratio of short term debt and long term debt.
Trend Analysis
The company has increased trend in terms of its revenue. The revenue of the firm is constantly growing which too has increased the gross profit margin and net profit margin for the corporation. Despite of decreased net profit margin and gross profit margin, the company has been able to generate more income through its increased sales, thus the company has positive trend in the revenue status.
The company also has the positive cash flow. The tendency of cash flow has been increased in 2012 as compared that of the previous year. The net cash flow for the year 2011 is negative, but by 2012, the company has recovered the previous deficit with additional cash balance generated from its operational activities.
Sustainability
With increased revenue and profit stream, the company holds chance of high sustainable environment. With reference to the activity based ratio analysis, the company has increased return in compared to the previous years. The company has increased its total asset turnover, receivable turnover, plant and equipment turnover, and cash & equitable turnover. The company will be in better off condition if the tendency of performance has relatively been higher that has compared to previous year. On the other hand, the increased revenue has also added chances that company will have sustainable future. The other statistical data illustrates that company have increased cash flow per share and book value per share.
On the other hand, due to advancement in technology, companies must have to protect their information and technology in order to remain relatively stronger in the market with retention of core competencies. The sector of information technology has been even tough compared to past era. Since, the company has significant business and do possess economies of scale in their production, there is difficulty for other competitors to penetrate in the market and compete with the existing one. Here, this company has almost created monopoly in market thus the company has but significantly least risk emerging from the competitive environment of the organization.
