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Managing Financial performance : Tools and Techniques

   

Added on  2020-01-07

21 Pages3561 Words160 Views
Managing Financial performance

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3QUESTION 1..................................................................................................................................3Preparing a business report for the Board of directors of ARM holdings Ltd by makinganalysis of key ratios...................................................................................................................3QUESTION 2................................................................................................................................17QUESTION 3................................................................................................................................19a. Issue more debentures............................................................................................................19b. Sell their investment..............................................................................................................20c. Company is allowed to make all sales on credit or not..........................................................20d. Issue more ordinary shares....................................................................................................20CONCLUSION..............................................................................................................................21REFERENCES..............................................................................................................................22

INTRODUCTION Financial performance management is the process which is highly concerned with takingstrategic actions or decisions which directly help in growth as well as enhancing performance ofthe firm. In this regard, ratio analysis technique is significant which in turn aids in evaluating thefinancial performance and thereby assists in assessing causes of deviations (Ratio analysis,2017). In this, measure of financial analysis helps in framing highly competent strategic andpolicy framework for the near future. The present report is based on different case situationswhich in turn develops understanding about several financial tools and techniques that help inmanaging the monetary aspects. QUESTION 1 Preparing a business report for the Board of directors of ARM holdings Ltd by analyzing thekey ratios To, Board of Directors, ARM Holdings PlcDate: 22nd February, 2017 Subject: Financial performance analysis It has been reported to the higher management team that ratio analysis has been conducted withthe aim to extract appropriate information from the financial statements of Arms Holding Plc.Such financial tool is effectual which in turn provides deeper insight about financial health,position and performance of the concerned business unit. Profitability ratios Particulars201520142013Sales revenue968.3795.2714.6Gross profit929757675Net profit339.7255.4104.8operating profit406.1309153.5GP ratioGrossprofit /net sales* 10096%95%94%Operating profit ratioOperating profit /net sales42%39%21%

* 100NP ratioNetprofit /net sales* 10035%32%15%2015201420130%20%40%60%80%100%120%GP ratioOperating profit ratioNP ratioFrom profitability ratio analysis, it has been assessed that GP ratio of ARM Holdings Plcincreased from 94% to 96% at the end of 2016. It shows that business unit has made propercontrol on the direct expenses. Besides this, in 2015 operating profit ratio also increased from21% to 42%. Hence, operating profit margin of the firm inclined in 2015 with higher rate ascompared to previous years. Along with this, NP margin of the company was 15% in 2013whereas it accounted for 35% at the end of 2015. By considering such aspect, it can be stated thatfirm had generated enough profit over indirect expenses. Thus, from overall evaluation, it isreported to the team of higher management that profitability aspect and performance of businessunit was sound during such period (Chwieroth, 2015). Liquidity ratios Particulars201520142013Current assets948.3870.9780.1Inventory1.82.73prepaid expenses28.723.921.7Current liabilities262.5260.3280.3Quick assets917.8844.3755.4Current ratio Currentassets/currentliabilities3.613.352.78Quick ratio Quickassets /current3.503.242.69

liabilities 20152014201300.511.522.533.54Current ratioQuick ratioTabular presentation clearly entails that the output of both current and quick ratio exceeded idealmeasure. Moreover, according to ideal ratio current and quick ratio must be 2:1and .5:1 (Mateenand More, 2013). From financial statement analysis, it has been found that company‘s asset levelincreased significantly and thereby capability in relation to making payment of financialobligations from 2.78 to 3.61. On the other side, quick ratio of the firm also increased from 2.69to 3.50 which mean that business unit had more current assets which can easily be convertibleinto cash for fulfilling the monetary obligations. Hence, liquidity aspect of the concernedbusiness organization was sound from the year 2013 to 2015. However, for enhancing the returnand thereby financial performance, company is required to invest money in other profitableinvestment opportunities rather than keeping with itself. Efficiency ratios Particulars201520142013Inventory1.82.73Cost of goods sold39.337.839.3Net sales968.3795.2714.6Total assets2120.21837.21638.4Inventory turnoverratioCOGS /inventory 21.8314.0013.10Total assets turnoverratioNet sales/ totalassets 0.460.430.44

2015201420130510152025Inventory turnover ratioTotal assets turnover ratioBy conducting ratio analysis, it has been identified that total asset turnover ratio was 0.44, 0.43& 0.46 respectively from 2013-2015. Such increasing trend or pattern shows that Arms HoldingPlc made optimum use of assets while carry out business activities. However, management teamis required to conduct training and programs for employee motivation. This in turn helps thebusiness unit in enhancing efficiency and thereby profitability aspect of personnel (Lam, 2010).Further, movement of inventory turnover ratio from 13.10 to 21.83 shows that stock was soldand replaced by Arms Holding Plc in 2015 more quickly. In this, by employing inventory controland management techniques, company can enhance its efficiency level or performance. Solvency ratios Particulars201520142013Long term debt11.36.54.2Shareholders’ equity27.925.618.8Debt-equity ratioLong termdebt /shareholders equity 0.410.250.22

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