Every company the financial health to be stabilized for performing better in the market environment and ensuring that business progressing towards a sustainable growth while accomplishing organizational objective using profitability as well as rendering welfare (Mohanram et al., 2018). The process of financial analysis is dependent upon analyzing the financial statements of the company as well as data mining the parameters like financial ratios which helps the investor to understand the trends the company’s financial performance. In this paper, the financial health of Eco World company has been evaluated with respect to numerical information available regarding the company’s financial performance as well as crucial ratio analysis have been computed to get a broader view the competitive market position of Eco World company (PRAŽÁK & Stavarek, 2017). The source of income, financial efficiency, working Capital Management, profit earnings, performance of the shares in the market, etc. All are important factors to understand the financial scenario of and provide chance to improve the financial feasibility business sustainability from the investors perspective (Mitrovic et al., 2015).
From the analysis of the financial statements that comprises of the balance sheets, cash flow statement as well as the income statement it has been seen that the Eco World Company have increased its net income from the year 2013 to 2017. The five years trend analysis provides clear understanding the monotonically increase speed of the company’s progress. Apart from that peer-to-peer analysis provides the performance of the competitors all company with respect to the performance of the company itself (Shah, 2015). The financial ratios have been incorporated in tabular form which can be shown as follows:
It is been seen that have its height growth in the year 2015 and 2014. How much it used to struggle with respect to market fluctuations in the later years (Kanapickien? & Grundien?, 2015). This is been seen from the growth ratio and can be shown in the diagrammatic format.
The number of shares of the company have increased over the five years period which reflects the fact that the company have confronted growth and rise in their market capitalization. It is been seen that the capital spending were initially low for the company though it made a lump sum investment by 2015 in order to implement infrastructural development. Thee investment that were made in the subsequent years are comparatively low yet the book value per share over the years have significantly raised. The operating cash flow has been increased while the availability of the free cash for covering up short term liabilities is moderate. This enables the firm to performance at a state of liquidity. The amount of capital utilized also has increased which incorporate the fact there is less amount of unutilized capital.
It is been seen that there is substantial growth in the operating cash flow over the years except 2017. Apart from that a monotonically increasing trend is been observed in the % of capital expenditure with respect to per unit of sales. This incorporates the fact that the company is able to reduce its capital expenditure with respect to achieving a higher level of sales and hence revenue earning potential.
Significant growth has been observed in the revenue earnings overtime due to utilization of the capital assets. Along with moderate growth in the revenue earning is been observed on an average in a 3 years period. The operating income is higher in the period of 2014 due to the reason that the amount of profit that is been utilized for the business operation in that period is higher after deduction of the operating expenses like the cost of goods sold, depreciation or the wages. It is also been seen that the revenue earning when subtracted by the cost of goods sold then the gross profit is obtained from where the operating expenses are deducted to get the operating income. Due to this reason the net income is higher in year over year.
The profitability ratio however gives a vivid view of the asset turnover as well as the return on assets in percentage. The interest coverage ratio as well as the return on equity provides the ability of the company to cover of its interest then they have to pay up on the capital invested for the company as well as the details that are be obtained from the equity shares through the performance of the company over time (Goldmann, 2017). The revenue earning company is found to be while it have a greater sales of goods and assets in the year 2015 holidays 2016 and 2017 it has been reduced 14. From 19. 59 to 14.93 and 12.6 respectively. It is also been seen that the asset turnover ratio was higher in the year 2014 though it degraded by the year 2015. However, the company is able to increase is asset turnover by the consecutive years of 2016 and 2017 respectively. The sales of goods and assets were higher in the years 2014 which increased the revenue earnings. However the tax rate were higher by the year 2015 for which the net income was lowered. The return on asset were highest by 2014 though the by 2015 is reduced for a greater extent. However, its gear up the amount of return from the sales of assets by 2016 and 2017 as it found to be monotonically increase by 1.64 and 2.24 respectively. The return on equity was lowered by the year 2015 while it also found to rise by 2016 and 2017 from 3.72 to 5.21. However, by 2014 it was also high as 13.42 respectively. Also by 2015 the return on the capital invested was low as 0.97 while by 2014 the company faced a higher return up to 11.49 %. Moreover, it has been seen to rise by the consecutive years of 2016 and 2017 from 2.42 % to 3.3 %.
The peer to peer comparison provides information regarding the market position of Eco World Company with respect to the market competitors. The table is incorporated in the appendix. It has been seen that the variation in the revenue earnings of Eco World Company with respect to the industry peers is close to 0.84 % only by the year of 2017. Whereas the operating income of Eco World Company is higher as compared to that of the industry peers by 0.58 % and the net income is higher by 0.62 % with respect to the average with the industry competitors. Hence the company is said to be performing better with respect to the average performance of the industry rivals as it is been also seen that the earning per share for Eco World Company is higher by 0.57 % from its competitors as a whole. The book value per share is however found to be low in case of the eco world company by 1.62 %. Moreover the operating cash flow in case of Eco World Company is higher which reflects the fact that the company is able to utilize more amount of its profit in order to run the business operation as compared to its rivals. This is a good financial state as it is also seen that the amount of free cash flow available for the company is also higher than the industry peers. However, the amount of average capital spending for the industry competitors is higher by 1.08 % as compared to Eco World Company.
The measurement of variance in the performance of the industrial rivals and Eco World Company renders a better understanding of the comparative financial performance in one table. The competitor’s analysis however, reveals that Eco World Company have a huge amount of shares through its operating cash flow is higher as compared to the industrial average (Camilleri & Camilleri, 2017). The diagrammatic representation of the peer analysis can be incorporated as follows:
In case of the cash flow ratios it is been seen that the more amount of operating cash flows are utilized by the Eco World Company with respect to its peers. However, the free cash flow to sales is low in case of Eco World Company as compared to its competitors. The free cash flow to sales is a measurement of the operating cash flows after the deduction is made in the form of capital expenditure made upon sales of the goods and services. Since the free cash flow to sales for Eco World Company is low hence this reflects the fact that the company has a low cash per share generated with respect to the accounting expenditures made in order to maximize the sales of the goods and services. It is been found that the company has a free cash flow to sales as 8.8 while in case of the average industry peers the value is close to 9.8. This shows that the company has a low cash flow per share for the shareholders and hence the dividends earnings for the shareholders is low. The implication of it is that there is a bit of financial crisis which highlights the presence of weak solvency.
It is been seen that the Eco World Company the asset turnover is higher than the peers which reflects the fact that the company is able to earn more than utilizing its assets with respect to that of the industry peers. The return on equity is also higher by 0.59 % and also the financial leverage. The return on equity and the return on assets are both high which is a good sign for the company. However the high amount of financial leverage reflects the fact that the company has used more of its fixed income securities like that of debt and preferred equity. This incorporated high interest payments as found in the table which negatively affects the earnings per share of the company in the bottom line.
It is also been seen that the tax that the company is not done the industry average due to low usage of non-liquid assets. Arrange the liquidity ratio on the other hand of the companies found to the higher as it maintains higher capability to cover up its short term liabilities with respect to their assets available to it (Arsad et al., 2017). It is also being seen through the cash flow ratios that the company have. A good amount of free cash flow available has grown over the years with respect to the industry average. The five year or the 3 year average is of the company’s free cash flow is not a believer with respect to industry and hence the liquidity ratio of the company is good. Due to this season from the efficiency ratio it is also been seen that the day sale outstanding is lower for Eco World Company than the other rivals in the industry (Arkan, 2016). The company has outperformed to the accounts payable period which is very high in case of the industry than in the case of Eco World Company. Moreover, the inventory turnover asset turnover is moderate in case of Eco World company competitor’s analysis reveals that it is higher in case of other competitors in the same industry (Afonso et al., 2018). This analysis will help to reduce the gap of the company with the mean level of the company and mitigate the variance in financial performance. Moreover, effective profitability management will be initiated followed by understanding prevailing industrial trends and reacting accordingly with the market fluctuations.
Recommendation & Conclusion
The following recommendations can be incorporated when should the financial performance of the company reminder to good position and investors understand the two image of Eco World Company in terms of their financial performance. The Company is been found to use a lot of liquid assets which help them to cover up their short term liabilities and enable the availability of sufficient free cash that they can invest for ensuring growth of the company. However, the company should also focus in building new assets and lower their dependency on loan repayments of shareholder’s profit. Reducing the liabilities will help the company grow in a better way which will take place not in terms of quantitative change but also qualitative change which is development. Moreover, this will help to maintain financial sustainability as well as establish the company as one of the business giant in the industry. The parametric factors that are bring the performance of the down are its inventory turnover as well as considerable amount of liquid assets which should be balanced with non-liquid assets to and the free cash should be reinvested to ensuring that the financial position of the company will not get confronted with further challenges in the long run.
References
Afonso, A., Baxa, J., & Slavík, M. (2018). Fiscal developments and financial stress: a threshold VAR analysis. Empirical Economics, 54(2), 395-423. https://link.springer.com/article/10.1007/s00181-016-1210-5
Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, 79, 13-26. https://www.ceeol.com/content-files/document-634690.pdf
Arsad, R., Shaari, S. N. M., & Isa, Z. (2017, November). Comparative study on DuPont analysis and DEA models for measuring stock performance using financial ratio. In AIP Conference Proceedings (Vol. 1905, No. 1, p. 040007). AIP Publishing. https://aip.scitation.org/doi/abs/10.1063/1.5012195
Camilleri, E., & Camilleri, R. (2017). Accounting for Financial Instruments: A Guide to Valuation and Risk Management. Routledge. https://www.taylorfrancis.com/books/9781315299433
Goldmann, K. (2017). Financial liquidity and profitability management in practice of polish business. In Financial Environment and Business Development (pp. 103-112). Springer, Cham. https://link.springer.com/chapter/10.1007/978-3-319-39919-5_9
Greco, S., Figueira, J., & Ehrgott, M. (2016). Multiple criteria decision analysis. New York: Springer. https://link.springer.com/content/pdf/10.1007/978-1-4939-3094-4.pdf
Kanapickien?, R., & Grundien?, Ž. (2015). The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, 321-327. https://www.sciencedirect.com/science/article/pii/S1877042815059005
Lim, J. Y., & Noh, W. (2015). Key components of financial?analysis education for clinical nurses. Nursing & health sciences, 17(3), 293-298. https://onlinelibrary.wiley.com/doi/abs/10.1111/nhs.12186
Mitrovic, A., Knezevic, S., & Velickovic, M. (2015). RATIO ANALYSIS SPECIFICS OF THE FAMILY DAIRIES’FINANCIAL STATEMENTS. Ekonomika poljoprivrede, 62(4), 1061. https://search.proquest.com/openview/4ee7b40414a5377a2ef43aa83ba01069/1?pq-origsite=gscholar&cbl=1696335
Mohanram, P., Saiy, S., & Vyas, D. (2018). Fundamental analysis of banks: the use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), 200-233. https://link.springer.com/article/10.1007/s11142-017-9430-2
Mousa, G. A. (2015). Financial Ratios versus Data Envelopment Analysis: The Efficiency Assessment of Banking Sector in Bahrain Bourse. International Journal of Business and Statistical Analysis, 2(2), 75-84. https://www.researchgate.net/profile/Gehan_Mousa/publication/292378239_Financial_Ratios_versus_Data_Envelopment_Analysis_The_Efficiency_Assessment_of_Banking_Sector_in_Bahrain_Bourse/links/56ade12a08ae28588c61993f.pdf
PRAŽÁK, T., & Stavarek, D. (2017). The effect of financial ratios on the stock price development (Vol. 43, p. 3). Working Paper in Interdisciplinary Economics and Business Research no. https://www.iivopf.cz/images/Working_papers/WPIEBRS2017/WPIEBRS_43_Prazak_Stavarek.pdf
Shah, M. B. (2015). A financial ratio analysis of Hindustan Unilever Limited (HUL). RESEARCH HUB-International Multidisciplinary Research Journal (RHIMRJ), 2(5), 1-5. https://oaji.net/articles/2015/1250-1430898790.pdf
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download