Sample Case Study On Finance

Summary of Facts

The summary of the company found from the income statement and balance sheet analysis of the company. From the income statement of the company, it is found that the sales of the company are increasing continuously with a strong amount of percentage that can be found in the year 1993, 1994 and 1995. Substantial amount of sales have been generated positively in the first quarter of 1996 as well.
The cost of goods sold to sales ratio of the company as discussed in the case study is very high. It was nearly 76% in the year 1993 and remained like the same in the year 1994 and 1995 as well, showing the inefficiency of the company as far as managing their direct cost to sales ratio. Apart from that, it is also found from the analysis that the company is not effective in terms of managing its operational cost or expense. The bottom line or end result of the company as mentioned in the income statement though lies in the positive node, but not sounds very interactive for the company. The net profit margin (NPM) of the company in the years 1993, 1994 and 1995 are 2%, 1.9% and 1.7% respectively. It is also showing that the profit margin of the company has been decreasing each year consistently. From the balance sheet analysis of the company, it is found that the operational assets of the company are not giving the required and desired result to the company. Return on Asset (ROA) of the company in all of these three years are 6.5%, 5.9% and 5.1% respectively, showing the inefficiency and inconsistency of the company as far as managing its operational assets for generating net revenues.

Problems

There are two problems highlighted in the case study associated with the company
The inefficiency of the company in terms of managing its direct cost due to which the net income of the company lied in a very low range

The inefficiency of the company to manage its operational assets in terms of generating net income

Analyze
The cost of goods sold to sales ratio of the company is higher than the level of 70% in each of the year from 1993 to 1995, which was extremely high, and the company is required to overcome on this problem as soon as possible

Pros:

It will increase the net income of the company
It will have a positive affect over the gross profit margin of the company
Cons:
It will increase the amount of taxation of the company
The ROA of the company lies in a very low range, like it only locates on a level of 6% to 5% on yearly basis. It is needed to increase perfectly for their future growth

Pros

High ROA will have a direct impact over the net income of the company
High ROA will make the company more effective in future
Cons
It will make the company to rely heavily over its operational assets
Recommendations
The company has to decrease their level of direct cost as well as the operational expense to increase their net income. They are advised to remove all the un-necessary expenses from the list to make it in a short number
It is required to utilize the operational assets of the company in a productive and powerful manner to increase the ROA of the company with positive node.