Morrison Company is one of the leading Storage and Material Handling System Integrator, which provides turnkey solution to maximize space and optimize efficiencies. The company helps with providing additional warehouse equipment’s, storage advisory services or facility system design. The financial analysis of the company was done in order to assess the performance of the company in the terms of the efficiency of the company and the profitability of the company. The performance and efficiency of the companies could be better assessed with the help of the financial statement analysis and trend growth rate of the companies (Banker, Chen and Klumpes 2016).
The ratio analysis of the company was done using the past four year financial statement of the company and the performance of the company in the respective trend period. Ratio analysis in an efficient quantitative tool for analyzing the financial performance of the company but one of the key limitation of application of the ratio analysis is that it does not consider the fundamental prospects of the companies. The application of the ratio analysis will help us get a trend analysis about the efficiency of the company and the performance of the companies. There were various ratio’s used for the analysis of the company’ performance such as Profitability Ratio’s, Liquidity Ratio, Activity Ratio and Gearing Ratio (Altman et al. 2017).
(Gross Profit/Sales)*100
The Gross profit margin for the company has remained almost the same for the company where the number were around 3.83% for the company in the year 2016 and the same came remained to around 3.67% for the company in the year 2018 due to the rising cost of revenue for the company. The profitability of the company reflects the sustainability of the company in terms of the long-term sustainable growth for the company (Brigham et al. 2016).
(Operating Profit/Capital Employed)*100
The return on Capital employed by the company shows the return generated for the shareholders of the company and the same has increased from the year 2015-2018. The return for the year 2015 was around -23% and the return for the year 2018 was around 10%. The same was because of the rising profitability and revenue for the company in the year 2015-18 (Greco, Figueira and Ehrgott 2016).
(Operating Profit/Sales)*100
The operating margin ratio for the company shows the efficiency of the company in generating operating profit for the company thereby generating a positive cash flow return for the company. The operating margin for the company was around -4.94% for the year 2014-15 and the same has consistently increased to around 2.54%. The higher the operating margin for the company the better is the asset management done by the company (Ibn-Homaid and Tijani 2015).
(Current Assets/ Current Liabilities)
The current ratio for the company shows the liquidity position for the company and the ability of the company in meeting the short-term liabilities of the company. The current ratio for the company was around 0.54 times for the financial year 2014-15 and the same declined to around 0.41 times in the year 2017-18. The companies should always tries to maintain a better liquidity position for the company indicating that the companies will be able to meet the obligation of the companies in a better way (Lakshmi, Martin and Venkatesan 2016).
((Cash + Accounts Receivables/Current Liabilities))
The quick ratio takes into consideration liquid assets of the company, which can be converted into cash quickly and effectively without further loss into the potential value of the assets. The quick ratio for the company was around 0.25 times and 0.19 for the year 2015 and 2018 respectively showing degrading liquidity position for the company.
(Cost of Goods Sold/ Average Inventory Held)
The inventory turnover ratio shows the efficiency of the company in managing the inventory of the company. The inventory turnover ratio for the company was around 24.39% in the year 2015 and was around 24.24% for the year 2018. This shows that efficiency of the company has increased in terms of the management of the inventory (Raki?evi? et al. 2016).
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Activity/Efficiency Ratio |
||||
|
Cost of Goods Sold |
16055000 |
15505000 |
15713000 |
16629000 |
|
Avg. Inventory Held |
658000 |
616000 |
614000 |
686000 |
|
Workings |
=B54/B55 |
=C54/C55 |
=D54/D55 |
=E54/E55 |
|
Inventory Turnover Ratio |
24.39969605 |
25.17045455 |
25.59120521 |
24.24052478 |
(Trade Receivables/Credit Sales)*365.
The receivable period for the company shows the average time taken by the company in receiving the due amount of the company. The receivables period taken by the company has consistently decreased for the company from the period 2014-15 to the year 2017-18 showing efficiency of the company in the collection of the due amount of the company.
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Trade Receivables |
350000 |
220000 |
245000 |
272000 |
|
Credit Sales |
6726400 |
6448800 |
6526800 |
6904800 |
|
Workings |
=(B59/B60)*365 |
=(C59/C60)*365 |
=(D59/D60)*365 |
=(E59/E60)*365 |
|
Trade Receivable Collection Period |
18.99232873 |
12.45192904 |
13.7012012 |
14.37840343 |
(Trade Payables/Cost of Goods Sold)*365
The payable period for the company shows the average time taken by the company in paying the due amount to the creditors of the company. The company repaid the due amount in around 31.76 days and the same has consistently increased for the company to around 49 days in the year 2017-18 which is good for the company.
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Trade Payable |
1397000 |
1690000 |
2126000 |
2270000 |
|
Cost of Goods Sold |
16055000 |
15505000 |
15713000 |
16629000 |
|
Workings |
=(B64/B65)*365 |
=(C64/C65)*365 |
=(D64/D65)*365 |
=(E64/E65)*365 |
|
Trade Payable Period |
31.75988789 |
39.78394066 |
49.38522243 |
49.82560587 |
(Total Debt/Total Equity).
The debt to equity ratio for the company shows the exposure of the debt level of the company with respect to the equity in the company. The increase in the debt exposure by the company may increase the financial risk of the company thereby influencing the profitability of the company. The debt to equity ratio for the company in the year has consistently been decreased by the management of the company which is good for the company thereby reducing the financial risk of the company. (Rehman et al. 2015).
(Earnings before Interest and Tax/Interest)
The interest coverage ratio for the company shows the interest burden of the company on the earnings before taxes for the company. The interest coverage ratio for the company shows the effect on the profitability of the company due to interest burden on the company’s financial statements. The interest coverage ratio has consistently increased for the company which is good for the company thereby showing that the interest level in the company is consistently decreasing.
(Net Income/Weighted Number of Outstanding Shares)
The earnings per share ratio for the company has been consistent for the trend period analyzed from the year 2015-18 where the net return generated for the shareholders of the company were consistent enough.
|
Particulars |
2014-15 |
2015-16 |
2016-17 |
2017-18 |
|
Investor’s Ratio |
||||
|
Net Income |
-761000 |
222000 |
305000 |
311000 |
|
No. of Outstanding Shares |
2332500 |
2332500 |
2327100 |
2338600 |
|
Workings |
=B43/B44 |
=C43/C44 |
=D43/D44 |
=E43/E44 |
|
Earnings Per Share (EPS Ratio) |
-0.326259378 |
0.095176849 |
0.131064415 |
0.132985547 |
(Earning Per Share/Dividend Per Share)
The dividend yield for the company was around 2.66% in the year 2014-15 but the same has consistently showed a growth to around 2.84% in the year 2017-18 which shows the dividend yield provided by the company is much efficient. (Vogel 2014).
Conclusion
The financial analysis of the company was conducted using the ratio analysis of the company and the same includes the profitability, efficiency, liquidity and activity ratio for the company to get an overview of the company’s performance. The profitability ratio for the company shows that the net profitability return generated by the company is declining given the trend stage. The efficiency ratio for the company showed some improvement in the field of increasing efficiency in the management of inventory management. The liquidity position for the company has somewhat increased for the company which suggests that the company may be able to meet up its short term obligations at a better way. The gearing ratio for the company indicated that the debt to equity position for the company has decreased from the year 2015 to 2018 indicating that the exposure for the debt of the company has consistently decreased. The reduction of the debt exposure will reduce the financial exposure and risk of the company. The earnings yield and the pricing for the company in respect to the sales and earnings for the company was observed to be quite high indicating that the valuation for the company currently might be overvalued.
Reference
Altman, E.I., Iwanicz?Drozdowska, M., Laitinen, E.K. and Suvas, A., 2017. Financial Distress Prediction in an International Context: a Review and Empirical Analysis of Altman’s Z?Score Model. Journal of International Financial Management & Accounting, 28(2), pp.131-171.
Banker, R., Chen, J.Y. and Klumpes, P., 2016. A trade-level DEA model to evaluate relative performance of investment fund managers. European Journal of Operational Research, 255(3), pp.903-910.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York: Springer.
Ibn-Homaid, N.T. and Tijani, I.A., 2015. Financial analysis of a construction company in Saudi Arabia. International Journal of Construction Engineering and Management, 4(3), pp.80-86.
Lakshmi, T.M., Martin, A. and Venkatesan, V.P., 2016. A genetic bankrupt ratio analysis tool using a genetic algorithm to identify influencing financial ratios. IEEE Transactions on Evolutionary Computation, 20(1), pp.38-51.
Lin, C.C., Chiu, A.A., Huang, S.Y. and Yen, D.C., 2015. Detecting the financial statement fraud: The analysis of the differences between data mining techniques and experts’ judgments. Knowledge-Based Systems, 89, pp.459-470.
Raki?evi?, A., Miloševi?, P., Petrovi?, B. and Radojevi?, D.G., 2016. DuPont financial ratio analysis using logical aggregation. In Soft Computing Applications (pp. 727-739). Springer, Cham.
Rehman, A., Jingdong, L., Du, Y., Khatoon, R., Nisar, S.K., Zhang, L. and Shahzad, T., 2015. financial performance, ratio analysis and evaluation of Agricultural Bank of China. International Journal of Economic Behavior and Organization, 3(5), pp.69-73.
Sujan, M.H.K., Islam, F., Azad, M.J. and Rayhan, S.J., 2017. Financial profitability and resource use efficiency of boro rice cultivation in some selected area of Bangladesh. African Journal of Agricultural Research, 12(29), pp.2404-2411.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
Xu, W., Xiao, Z., Dang, X., Yang, D. and Yang, X., 2014. Financial ratio selection for business failure prediction using soft set theory. Knowledge-Based Systems, 63, pp.59-67.
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