Financial Analysis of Tech Gadgets, Valuation of Drone2000 Ltd, and Project Analysis of Burglar Catcher

RUNNING HEAD: FINANCE
finance

Finance 1
Contents
Introduction................................................................................................................................2
Requirement 1............................................................................................................................2
Part b.......................................................................................................................................2
Part c.......................................................................................................................................4
Requirement 2............................................................................................................................4
Requirement 3............................................................................................................................6
Part a.......................................................................................................................................6
Part b.......................................................................................................................................6
Part c.......................................................................................................................................7
Requirement 4............................................................................................................................8
Part a...........................................................................................................................................8
Part b.......................................................................................................................................8
Part c.......................................................................................................................................9
Conclusion..................................................................................................................................9

Finance 2
Introduction
This report contains a financial analysis of Tech Gadgets, shows the impact of omitted
transactions, provide an overview of valuation methods used for determining the value of
Drone2000 Ltd and make a project analysis of Burglar Catcher which is to be undertaken by
Tech Gadgets.
Requirement 1
Part b
 Current ratio: This ratio measures the Tech Gadgets’ ability to pay its short term
liabilities with use of its current assets. The ideal ratio is 2:1 (Saleem and Rehman,
2011). It is observed that CR of Tech Gadgets was highest in 2015 reported at 12.40.
In 2017, the same ratio was reported at 6.74 more than the sector average of 5.23.
This means company is capable of utilizing its current assets more efficiently in
paying off its liabilities.
 Quick Ratio: It is also used for measuring the liquidity position of a firm. The
company uses its quick assets such as cash and marketable securities for paying off its
current obligations (Parrino, Kidwell and Bates, 2011). The QR of Tech Gadgets was
5.92 in 2017 and 8.77 in 2014. The highest was at 10.61 in 2015. However, the ratio
is still more than the sector average of 4.88. This implies that the company has stable
liquidity position in the industry in which it operates.
 Gross profit margin: This ratio measure the gross profit earned by the company in
terms of sales percentage (Bragg, 2012). It shows the portion of sales which is earned
as a gross profit by the firm. Tech’s GPR has increased over the period of four years.
In 2014, it was 60% and the same reported at 68% in 2017. The industry average was
57%, less than the company’s ratio. This implies that Tech is able to maintain its

Finance 3
profitability position in the market and has shown a continuous increase in its profit
figure.
 Operating profit margin: It indicates the amount of revenue left after paying all the
cost of goods sold and the operating expenses. The figure is expressed in terms of
percentage and is used for measuring the profitability of the company. In 2016,
Tech’s OPR was 41% which reduces to 37% in 2017. Also the operating profit
margin of the company remains lower than the sector average of 45% throughout the
four years.
 Return on Capital Employed: This ratio evaluated the profitability of an organization
on the basis of the capital employed or invested in the business. Fluctuations are been
noticed in Tech Gadgets’ ROCE. In 2014, the ratio was 23% which rises to 27% in
2016. Later in 2017, it reduces to 24%, becoming lower than the industry average of
26.80%. This reduction is due to the decreased EBIT of the company and it implies
that company is not able to make more profits from its capital employed as compare
to its competitors within the industry.
 Net Asset Turnover: It is one of the efficiency ratio which determines the potential of
a company to generate sales from its assets. A high ATR is considered to be more
desirable as it makes a firm more efficient (Jenter and Lewellen, 2015). The ATR of
Tech Gadgets continuously decreases over the period of four years. This is due to the
continuous increase in the net assets of the company. Also the sector average is 0.97
which is more than the company ratio of 0.65 in 2017.
 Average inventory turnover ratio: It shows the number of times a firm has converted
its inventory into cash. Generally, companies having high ITR are considered to more
efficient in managing their inventory and other assets (Vogel, 2014). Tech’s ratio has
been increased over the years and in 2017 it was 1.94 times. However, it was less than