Ratio Analysis for Gentry Electronics: Evaluating Financial Performance

This article provides a detailed analysis of Gentry Electronics' financial performance over the past 4 years using various accounting ratios such as gross profit, net profit, inventory turnover, and current ratio. The article also provides recommendations to improve the company's financial position, including reducing stock days, enhancing business resources, improving selling, and reducing expenditures. Additionally, the article suggests two potential options for increasing funding, including debenture funding and equity funding.

Ratio analysis

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
A..................................................................................................................................................1
B...................................................................................................................................................1
C...................................................................................................................................................4
D..................................................................................................................................................4
E...................................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
This evaluation of Gentry Electronics' accounting ratios over the past 4 years is being
employed to examine the corporation's fiscal success over the last 4 years (Alsharari, Dixon and
Youssef, 2015). We evaluate many sorts of statistics in this analysis, such as gross profit, non-
current turnover, operational earnings margin, net income, total liabilities, solvency ratio,
leverage ratio, return on assets, and capital growth used. Such statistics assist us in evaluating the
firm's profitability and making monetary decisions based on such statistics. Those metrics can be
used by the business to assess the fiscal effects. Section 1 involves calculating the ratios, whereas
section 2 entails calculating the monetary implications and deciding whether or not to raise
money.
MAIN BODY
A
Data (Millions) 2021 2020 2019 2018
Current asset/Current liability 1800/600 1423/590 1183/525 841/420
Current ratio 3 2.41 2.25 2.00
Gross profit/Sales 3100/9428 3200/8674 3091/7536 3283/6840
Gross profit ratio 33% 37% 41% 48%
Net profit/Sales 754/9428 987/8674 979/7536 958/6840
Net profit margin ratio 8% 11% 13% 14%
Cost of goods sold/Average
inventory
6328/925 5474/757 4445/602 3557/418
Inventory turnover ratio 6.84 7.23 7.38 8.51
Inventory/Cost of goods sold*365 925/6328*365 757/5474*365 602/4445*365 418/3557*365
Days in inventory 53.35 50.48 49.43 42.89
B
The corporation evaluates many sorts of statistics such as liquidity ratios, profitability
ratios, operating profit margin, stock turnover, and average days in inventories based on the
aforementioned computation of the ratio. Those proportions are explained further down.

 Current ratio- It is employed to assess a corporation's viability. It compares current
resources to current obligations (Anandarajan, Anandarajan and Srinivasan, 2012). This
proportion is also used to determine a firm's connectivity investment and present
liquidating status. In the aforementioned computation, the current ratio increased with
duration; in 2018, it was 2, but it increased progressively over the following 3 years,
indicating that the corporation is doing well since its resources are outnumbering its debts
and it has the capacity to achieve its commercial responsibilities. Since this ratio informs
us regarding the present state of the firm and the corporation's fiscal standing. The current
ratio "measures the liquidity of the company's current assets."
 Gross profit ratio- Since gross profit is not a capital gain in the organization, thus this
ratio could be calculated as earnings minus expense of goods in the firm. It is a potential
technique to estimate the total income for the commercial enterprise. Increasing total
profitability is a common strategy used by businesses to reduce fluctuating and fixed
manufacturing costs (Chiwamit, Modell and Yang, 2014). The gross earnings ratio of the
corporation has gone up and down over time since in 2018, the gross profit ratio was 48
percent, and in subsequent years, it can be seen from the above calculations that the ratio
has decreased as compared to 2018 in all the years that are 2019, 2020, and 2021, and the
business seek to boost selling or lower the expense of products offered for selling to
achieve an elevated gross earnings percentage. It describes gross profit as "the productive
benefit gained from selling less expense." It is not a real cash or profitability proportion,
but rather a gross earnings percentage that tells us how much money we made from our
sales. We compute the gross income by subtracting the expense of products supplied
from the sales, which gives us the gross earnings. In this case, the firm's gross earnings in
2019 was higher than that in 2020. This indicates that perhaps the corporation must
reduce costs in 2020 in order to boost gross operational revenue. Because the higher the
sales, the higher the profit, the corporation must lower the price of items supplied in
2020.
 Net profit margin- This ratio is calculated by subtracting operational expenditures from
net sales. Operational income, also known as net earnings, is the firm's ultimate
revenue which is accessible to ordinary stockholders for dividend purposes (Katsikas,
Rossi and Orelli, 2017). An operational earnings is another way to gauge a company's

yield; we ought to be aware that operational income, or net income, rises in parallel with
selling revenue. The net profit ratio was 14% in the year 2018 and since then it has
decreased in all the rest of the 3 years. We undertake several judgments regarding
improving the firm's efficiency and profits based on net income. The operational revenue
or earnings is produced after all operational expenditure are removed from the gross
revenue or profits, and this operational gain or revenue would be before interests and
taxation. The corporate operational profitability in 2019 is higher than the operational
profitability in 2020. It shows that the corporation's revenue will rise in 2020 and fall in
2019. Since the operational earnings in such 2 years differed, and we were able to limit
the expense of item manufacturing.
 Inventory turnover- It is the actual counting of items in the respective company
stockpile, but we're talking approximately the inventories turnover ratio, which may be
used to calculate the expense of items supplied across inventories. Various firms employ
varying inventories systems. Stock turnover ratio refers to the duration it takes for stock
to be turned into money (Khodabandelou, Karami and Talaneh, 2017). During this
procedure, stock is transformed into finished commodities that are available for selling.
However, in the preceding data, stock turnover ratio remained constant for the very initial
2 years, while stock turnover period increased in the following years. It means that over a
significant length of span, inventories would be converted into finished goods. Stock
turnover is a proportion which informs us how stock changes from its initial price to its
capital gain. In the 3 year chart in the previous section, we could explore that the
company's stock turnover ratio in 2019 is 7.38 days, but it will be 7.23 days in 2020,
indicating that stock turnover ratio is growing in line with prior year documents.
 Days in inventory- These are the aspects which are based on the mean length of stocks.
This is the technical number of the stock, and we calculated the days of the stock
throughout time (Mistry, Sharma and Low, 2014). This mean lifespan of stockpile is used
in the money converting process to ascertain the money transformation loop of borrowers
and then using the mean period of stock. In the aforementioned scenario, the business
uses various periods concerning stock days in 2018, 42.89 days to stock to transform into
money, but this proportion is slightly declining over period. This demonstrates that if

stock takes fewer days to convert it into money, it is favourable to the firm's
management.
C
Possible solutions and recommendations- In the circumstances described previously, the
positive recommendation may minimize the firm's prospective solutions. Changes in the business
are essential for a firm, and how such enhancements assist us in evaluating decisions in the first
place (Namazi and Shamsodini, 2016). As the corporation's fiscal adviser, I recommended the
below solutions and proposed ways to enhance these-
 Reduce stock days- Stock is the tangible tally of item offerings. I recommend that the
business reduce stockpile days since it is advantageous for our firms to grow current
resources once stock days are reduced, and all those kind of increased days lead to boost
funds, since stock is converted into money holdings.
 Enhance business resources- Since holdings of the firm are the principal cause of a
firm's efficiency, I recommend that the business resources be increased (Noreen, Brewer
and Garrison, 2014). Expanding the corporate resources will result in higher in earnings.
The earnings is determined by the firm's resources and capital investments, which create
the firm's prospective profit.
 Improve selling- Since selling is indeed the firm's primary source of earnings, I advised
the business to boost selling in order to boost the gross profitability ratio and operational
profitability ratio in the coming seasons, since growing selling leads in a higher
profitability ratio (Nørreklit, Raffnsøe-Møller and Mitchell, 2016). "Boosting revenue is a
great efficiency of organisations," it is mentioned.
 Reduce the firm's expenditures- The firm's expenditures must be reduced since lower
costs result in a higher net profitability ratio. "Lower costs lead to a higher level of
earnings," it is mentioned.
D
Comments and approaches- In light of recent events, Erica must advise Gentry
Electronics on how to find appropriate means of funding and raise capital. Erica's administration
wishes to recommend these resources because then Gentry Electronics can expand its forms of
revenue and expand its earnings in the coming years (Schaltegger, Etxeberria and Ortas, 2017).
Erica advised that Gentry Electronics raise capital in order to expand the firm's funding. The

Gentry electronics proposals which I mentioned earlier must be implemented and all those
recommendations are feasible from a financial standpoint. So when a corporation's selling
expand, it opens up additional funding alternatives and boosts the efficiency of a corporation.
The proposals I've made previously must be implemented by Gentry electronics, and the
company's management and top operating officers desire to improve the company's finance
assets. Since Gentry electronics doesn't really function sans funding, resulting in minimal output.
Gentry Electronics can expand its financial capabilities in the following manner.
 Improves the firm's technical capabilities in order to boost efficiency.
 Monetary data shall be kept up to date and precise (Situm, Märk and Kathan, 2021).
 Examining monetary instruments and developing marketplace funding alternatives.
 Improve the aggregate operating ratio by controlling the expenditure factors.
In the aforementioned circumstances, Gentry electronics could be improved and assets inside
the company could be increased. Since such kinds of enhancements are advantageous to the
Gentry electronics firm. Erica must assess the Gentry electronics' effectiveness on annual
accounts and verify how well the Gentry electronics’ supplies would then be used in the long
term. Erica must give due importance to the Gentry electronics' channels of funds in several
aspects of monetary effectiveness and propose a suitable manner to raise investment in the
Gentry electronic (Sledgianowski, Gomaa and Tan, 2017). Erica may offer to Gentry electronics
a few of the 2 potential options for increasing the growing funds.
 Debenture funding- Debt payments are the obligations which we owe to strangers whom
we have borrowed money from so as to fund the company which can further add to the
finances and can help the company to grow financially in the highly competitive market
in which it is operational. In this case, Erica must contact Gentry Electronics to see if
they can help her minimise her liabilities or obligations so she may focus on acquiring
funds. We all understand that loans are a form of funding, but in terms of funding, the
Gentry would create liabilities to raise company mean expense of investment and
efficiency, allowing them to expand their capability for more advanced manufacturing as
technologies advances. Liabilities are one of the most common ways for people to raise
the money they need to pay off their debt obligations. "Liabilities are the periodic
commitments by borrower large corporations which would be an excellent suggested as

type of funding in the funding operation," according to certain liabilities. A few of the
liabilities which Erica might push Gentry electronics to indicate are listed beneath-
Securities- These are bonds which is issues in the market and thus is a good method to fund
a project. It is the finest instrument, as well as financial and regulatory documents, which an
investor can obtain for the goal of engaging in your firm (Teja and Wahyuni, 2019).
Debentures- These are the liabilities which the borrowed entity creates. The mortgage is a
type of corporate debt which is being employed to raise funds from the population at large in
exchange for putting on debt.
Longer term commitment- It is an initiative made by any business entity in your own firm
to improve the firm's finance and performance. Gentry’s electronics must provide longer
run funding in the business in order to boost the organization's efficiency ratio.
On the foundation of such recommendations, Gentry Electronics would assure that the firm has 2
viable forms of funding: equities funding and loan funding, as they are the business's primary
forms of funding.
 Equity funding- Gentry Electronics capital expenditure ought to be significant in order
to expand the firm's assets and improve its efficiency, resulting in increased production.
Any small corporation that increases its capital is able to pay its fiscal responsibilities
while also aiming for a strong revenue margin. "Whenever our streams of funding grow,
it leads to a higher cost of financing, a higher interest on equity, and a collection that
generates the most working capital in a given fiscal quarter." As per such sources,
increasing our streams of funding leads to the highest possible yield. Now would be the
time for Gentry electronics to expand its equity finance in the following years, as the
company's fiscal condition from 2018 to 2021 will be unsatisfactory (Trigo, Belfo and
Estébanez, 2016). The share capitalization of Gentry Electronic must be increased. Such
equities investments come in a variety of shapes and sizes, and several of which could be
described as follows:
Preference and equity holdings- Preferred shareholders are at first assigned securities in the
corporation, and such share owners receive 1st payout payments, which are then paid back in the
corporation, increasing further financing, whereas equity shareholders are issued to the overall
community for investing money inside your own corporation. Erica must advise Gentry

Electronic to raise more capital in order to expand the quantity of existing units on the stock
exchanges.
E
Finance and operational risks- Finance dangers are complications related to money. In
this, Jeff and Erica propose accepting to expand the company on a world stage, but what
conditions would be faced to do just that, and also how many obstacles would then there be
related to money exchange, finance and functioning risks which occur in the Gentry electronics.
The below are among some of the company's fiscal and operational uncertainties:
 Foreign conversion danger- It is the threat which results from the possibility of
transferring the concern throughout global commercial activity. Gentry Electronics aims
to develop its company globally, which entails exporting its products to nations all
around the globe and causing financial exchanges with some other nations. The worth of
cash can be reduced or increased in global marketplaces. As per Jeff and Erica's advice,
Gentry Electronics would be a recently created entity that would neither be exposed to
foreign conversion concerns and nor would be vulnerable to industry deficits (Vetrov,
Vandina and Galustov, 2017).
 Controlling risk- Controlling vulnerability related to the firm's structure of corporate
management. Gentry created a fresh firm internationally and raised additional capital and
hired additional people to expand the firm's financial performance. Expanding the
quantity of employees with the modern company model helps to manage concerns, since
we all understand that big income equals huge exposure. Whenever a corporation
expands its operations on a global scale, it expands its firm's operations as well. "Each
growing company posed a significant regulate threat." This controlling danger caused
harm to the Gentry electronics' interior database, and Erica and Jeff were honest
regarding the hazards.
 Dissolution risk- Each recently created corporation faces various difficulties or problems
in the global commercial enterprises. There really are various types of ambiguous
positions and monetary dangers that businesses confront. Dissolution danger is a threat
which assesses a company's capacity to satisfy its monetary commitments. The
liquidating proportion (current ratio is favourable) in that kind of a document is no
assurance that Gentry Electronic would be competitive in the marketplace. The liquidated

danger concerns the Gentry firm's finances, as well as how the Gentry corporation will
fulfil and manage its fiscal commitments.
CONCLUSION
Ratio analysis is one of the most important aspect for each and every company that is
working in the market irrespective of the industry in which it is operational as it helps in
analysing and evaluating the overall performance that is both short term as well as long term
scenario so that appropriate measures can be taken by the management of the company in that
regard which can help it to achieve goals and objectives that are set up at the beginning of the
firm. The above firm which is explained in detail that is Gentry electronics has performed pretty
well in the market as per the standard and the set norms of the industry in which it is working
and thus it can be said if the firm can apply and implement the measures that are said above so as
to improve its overall performance then it can help the enterprise to achieve and sustain in the
market much more that what it is doing in the current time and thus it can additionally help the
company to flourish and thrive in the industry which is highly competitive and dynamic in
nature. Also it can be seen from the above that the firm is performing well in the year 2018 in
many areas but not as good in the rest of the 3 years and hence appropriate measures must be
taken so that it can help the firm to accomplish its goals in the longer term.

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