The company can only be analyzed in the most general way by comparing it to the general performance in the industry. The company is a software manufacturing company and is therefore in the technology industry.
Ranked in comparison to the other companies, it is well positioned and competing in a healthy manner. It is ranked as the fourth best company in the industry.
The market value of its shares is steadily increasing, a sign of growth .
In comparison to the very dynamic changes taking place in the industry, the rate of innovation of the country has greatly increased and coming up with software that are relevant to the users.
The operations of the company have been running smoothly despite there being a lot of legislation that the company is expected to comply with.
The amount of legislation is generally what is the greatest hindrance to the company internationalization and expansion to other states and companies.
Despite the many environmental factors the company is striving to remain relevant and perform well above average.
Profit margin: the company has a profit margin of 13%
The return on capital employed is at 0.4
The return on equity is 0.8
Debt management ratios
Debt to equity ratio is at 40%
Market value ratios
Dividend payout ratio of 0.4
Profitability of the industry
Profit margin; the profit margin is at 9%
Return on capital employed is at 0.6
The return on equity is 0.5
Debt management ratios
Characterized by a debt to equity ratio of 38%
Market value ratios
The average dividend payout ratio is 0.6
Current ratio is at 0.8
The times interest earned ratio is 2.4
The acid test ratio is 1.3
The recommended current ratio for the industry is 0.5
The average acid test ratio for the industry is at 3.5
The comparison conclusions
The profit margin of the company is at 13% which is considered to be low in comparison to the objectives. The company was aiming at achieving a target of 26% for the last financial year. However it is well positioned when compared
to the average margin for the industry, an indication that they could either be having a greater revenue or less expenses.
The Return on Capital Employed is at 0.4 which is relatively low compared to that of the industry which is at 0.6. this is an indication that the company is gaining less in comparison to the average of the industry especially when the capital employed is considered.
Its return on equity is encouraging. In this case, the net profit is what is considered. This is an indication that the company is wise in its spending. The expenditures are greatly reduced.
When it comes to the debt management, the company has undertaken a policy of 40% leverage. They seem to have taken the course that most of the other companies in the industry have taken.
The dividend payout ratio s very lucrative when compared to the other companies in the industry.
The times interest earned is very appealing for the company in question. This is a clear indication that the company does not take loans that it is not able to service which is an encouraging trait. As much as there is no industry average, there are other companies that are not able to service their debts and they are disadvantaged in that they are not able to cater well for the company.
The acid test ratio indicates how well a company is positioned in terms of assets and assets equivalents. This is encouraging but when compared to the industry, it is not good and needs to be improved. The assets are in all ways advantageous to a company.
Position in the market
Having carried out a research on the market in general, the technology industry is one of the fastest growing in the economies of different countries worldwide. This is due to the increased globalization and use of technology.
The company can benefit a lot from concentrating only on the technology industry. The insight and competition is enough to foster growth (Neely, 2007)
The company has disregarded influence from the external environment which is not good at all, causing it to lag behind in terms of innovation and implementation of many of the new legislation and development of the software.
In terms of deviation, the industry is actually performing better than the individual company.
The marketability of the company, as deducted from an online survey of the customers, needs to be worked on through means such as advertisement as it is greatly faltering.
The aspect that is most neglected is that of customer satisfaction.
A reduction in the liquidity of the company assets. When the liquidity is at a high level, the company is more likely to use the cash and its equivalents in a manner that is not wise. Therefore it would be good if the means to acquire cash was made a bit more complex.
The company is lagging behind in meeting its objectives especially from the financial perspective> that is why I recommend that the following steps should be taken to attempt salvaging the situation.
Establishment of cost centers. This will ensure that the company is able to monitor its expenses in a better manner which is one of the ways that profitability can be increased (Neely, 2001).
Revision of the dividends payout policy. This will attract more investors when it is lucrative. Currently any additional equity would come in handy in expanding the business.
Opting for long term debts instead of the short term liabilities. This helps the company to use the money that is at its disposal more wisely. Current liabilities mostly come in small amounts which end up not being helpful at all. The long term liabilities could help stabilize and even expand the business.
The operations, marketing and development aspects of the company seems to be well catered for but the financial sector has been highly neglected. More effort should be put into the financial management too. Skilled and competent financial officers should be recruited to deal with the situation.
The company has concentrated too much on the internal environment. Considering factors in the external environment will make the company more sensitive to the changes in the market and even manage a healthy competition with its competitors.
The annual general meeting ought to be taken with more seriousness. This is going to help the stakeholders to contribute in the decision making of the company. Their ideas would go a long way in helping the company improve its operations.
Neely, A. (2001). Business performance measurement: Theory and practice. Cambridge: Cambridge University Press.
Neely, A. D. (2007). Business performance measurement: Unifying theories and integrating practice. Cambridge: Cambridge University Press.
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FIN 515 Week 2 Project Financial Statement Analysis.pptx