There are many areas of weakness that can be addressed in order to increase financial stability, market share, profitability and compete in order to compete in a competitive environment. Recommendations discussed and not limited to – Improving the average collection period – Improving ways of production Allocating cash to increase equity The following report does show some forms of analysis however comprises of limitations due to the lack of data provided, to reflect on previous years, current economic conditions.
Significance – factors affecting SEES Liquidly: Liquidity is a business’ ability to turn assets into cash in the short term to fund daily business activities. SEES must take into account the liquidity of their assets in order to fund wages, equipment, short-term loan repayments and be able to fund unanticipated externalities. Solvency: Solvency Is the extent to which a business can meet Its financial commitments In the long-term. This Is Important to SEES as it Indicates to the owners, shareholders and creditors the risks of the Investments.
Profitability: Profitability is the ability of a business to maximize their profits. SEES must ensure they maximize their profits as it satisfies both owners and shareholders in the short-term and longer term sustainability of the firm. Efficiency: Efficiency is the ability of the business to minimize costs and maximize profits while keeping assets at a minimum. SEES must adapt their efficiency to their production to monitor the levels of their cash, Inventories and accounts receivables. Financial analysis Liquidity ratio = Gearing (solvency)
Gross profit ratio= Net profit ratio = Profitability: Current Debt to equity = Efficiency: Expense ratio= Accounts receivable turnover ratio = Concerns regarding financial analysis Liquidity: Current ratio: Further analysis of the ratio 5:1 in comparison to the ideal results of 2:1 show that the investment and assets are not being allocated efficiently or effectively, which can affect the financial position of the business. According to the financial analysis, account receivables and inventories hold the greatest value, meaning the goods are to being collected.
In other words, outstanding balances aren’t being collected. Debt to equity ratio: The debt to equity ratio is 51. 3%. The ideal range would be less than 100%, indicating that SEES sits in a healthy range also doing well against the industrial standard. However, this does raise concerns as the business is geared at a low rate, missing opportunities for growth. Profitability: Net profit ratio: Net profit is at 5% which means that for every dollar of sales, only c of profit after tax is being made. This is a major concern for the business as they are not making an efficient amount of profit.
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