University Finance for Managers: Cromwell Tools Financial Analysis

This report provides a comprehensive financial analysis of Cromwell Tools, examining its performance based on key financial ratios. It begins with a theoretical overview of finance and financial statement analysis, covering various methods like comparative statement analysis and ratio analysis. The report then delves into the critical interpretation of financial data, focusing on profitability (return on assets, profit margin, return on shareholders fund, EBIT Margin), operational (net asset turnover, debt turnover), and structural ratios (current ratio, liquidity ratio), and per employee ratios (profit per employee, turnover per employee). The analysis reveals trends in these ratios over several years, highlighting both favorable and unfavorable financial conditions. The report also identifies the main risks and opportunities facing the company, such as changing consumer behavior, competition, and counterfeit products, concluding with the firm's financial health and productivity. The report uses the data to analyze the performance of Cromwell Tools, and provides an understanding of the financial position of the organization.

Running head: FINANCE FOR MANAGERS
Finance for managers
University Name
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Authors’ Note

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Introduction
The current study presents a theoretical basis of finance and hereby presents financial
analysis of the firm Cromwell Tools. The study presents a review of the financial
performance of the firm based on outcomes of key financial ratio. Moving further, the study
presents the threats as well as opportunities faced by the firm from the perspective of both
financial as well as non-financial measures. Thereafter, the study also presents ways of
resolving the detected threats of the corporation.
Critical assessment and evaluation of theoretical basis of finance
The corporation mainly includes several interested parties such as owners, management,
customers, suppliers, contenders, regulatory agencies, personnel and academics, everyone
having their opinions in implementing financial statement evaluation in their analysis.
Practitioners utilize financial ratios for instance, to estimate the upcoming success of
corporations; whilst the researcher’s primary interest has been to develop models exploiting
the ratios.
The current paper delivers a theoretical structure for the analysis of financial instruments of
the corporation. Theoretical base associated to development and implementation of financial
strategy policy instruments in general and then attempts to deliver classification of pertinent
information. The investigation of important finance theories includes discussion of different
types of financial evaluation that are mainly of two types: analysis based on requirements of
the clients and analysis based on modus operandi. Based on requirements of the client,
financial analysis includes external analysis and internal analysis. Again, based on modus
operandi, financial analysis includes horizontal analysis and vertical analysis (Wahlen et al.,
2014)..

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The analysis of financial assertion can be utilized to ascertain overall financial position and
outcomes of functions as well. Different methods that can be used include the following:
- Comparative statement analysis
- Trend analysis
- Fund flow analysis
- Analysis of cash flow
- Financial ratio analysis
- Cost-volume-profit analysis (Wahlen et al., 2014).
Critical analysis and interpretation of financial data
Ratios used for analysis: It is important for investors to utilize financial ratio for analysing
performance of the company before deciding to make investment in the company. A ratio
analysis is useful in the quantitative analysis of the information that is contained in the
organization financial statements. Ratio analysis is generally used to assess the numerous

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aspects of the organization in the areas of operating and financial performance namely the
efficiency, liquidity, profitability and solvency. Ratio analysis serves as the tool in analysing
the performance of the organization over the period of time with the present and historical
financial information. The data that is derived from the statements is put into the use to
compare the organizations performance over the period of time to determine whether the
organization has been improving its performance or has been experiencing a fall in its
performance.
Profitability Ratios:-The profitability ratio can help in measuring ability of the corporation
in generating profits (Wahlen et al., 2014). The profitability ratio represents how the
company is deriving profit from the operations. Additionally, the profit margin ratio, return
on asset ratio, return on equity ratio, return on capital ratio and the gross margin ratio is
computed to gauge into the profitability of the organization over the given period of time.
Every organization is largely concerned with the profitability of its operations and one of the
most recently sought after tool of assessing the financial ratios analysis is the profitability of
the organization. They are used to determine the overall efficiency of the organization and its
performance.
Return on total assets: Return on assets reflects the way the business concern is utilizing
their available assets for the purpose of generation of income/earnings (Grant, 2016).
Essentially, this can be derived by dividing the net income by total net earnings of the
company by their total assets possessed. The return on assets is one of the financial ratio that
represents the percentage of profit an organization derives in respect of the overall resources.
The return on assets is largely defined as the net income divided by the total amount of assets.
Profit Margin (%): Profit margin can be considered to be an important profitability ratio
enumerated as net earning that is necessarily divided by revenue, or else net profits divided

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by the total sales (Grant, 2016). The profit margin ratio is expressed as the percentage of the
total amount of sales. The profitability ratio represents the measurement of those amount of
the income derived against each dollar of the sales generated by comparing the net income
and the net amount of sales of the organization.
Return on Shareholders Fund: Taking into the considerations the return on shareholder
funds the company reported over the period of five years have been tumultuous and the firm
did not reported the steady flow of trend. In respect of this during the year 2012 the company
reported return on shareholder’s fund of 24.74 and in the following year of 2013 the return on
shareholder for the firm stood 22.74 respectively. On the other hand, in the year 2014 the
return on shareholder stood 20.08 and in the subsequent year it stood 10.58. The return on
shareholder represented a declining trend over the period of five years for the company.
EBIT Margin: As evident from the return on EBIT the company reported over the period of
five years have been tumultuous and the firm did not reported the steady flow of trend. In
respect of this during the year 2012 the company reported return on EBIT Margin of 9.35 and
in the following year of 2013 the EBIT Margin for the firm stood 9.26 respectively. On the
other hand, in the year 2014 the EBIT Margin stood 8.88 and in the subsequent year of 2015
it stood 3.96. The EBIT represented a falling trend trend over the period of five years for the
company. This can be attributed largely to the falling revenue and increasing administrative
expenditure of the firm.
Review of the performance from the perspective of profitability
Analysis of performance of the firm Cromwell Tools reflects the fact that the return on total
assets has declined considerably 7.67% during the year 2015 in comparison to the year ago
period. Essentially, a declining return on total asset ratio indicates an favourable financial

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condition for the firm as this replicates decline in total income of the firm in comparison to
the total assets possessed by the corporation.
Again, it can be observed that the profit margin has also decreased considerably during the
year 2015 to 4.22% in 2015 as compared to the previous year figure of 8.94% in 2014, 9.29
in 2013, 9.23% in 2012, 7.75% in 2011, 4.73% in 2010, 3.75% in 2009 and 7.44% in 2008.
The registered figures reveal an undesirable financial condition of the firm as decline in
profitability ratio shows decrease in net earnings of the firm out of the generated sales.
On the whole, it can be thus being inferred that Cromwell Tools has an unfavourable
financial condition of considered from the perspective of profitability.

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Operational Ratios:-
Net Asset Turnover: It is an important operational ratio that enumerates potential of a
corporation to essentially generate sales out of the available assets by comparing overall net
sales with the average assets. In other words, this ratio replicates the extent of efficacy of a
firm to utilize the assets of the company to make sales (Cucchiella & Rosa, 2015).
Debt Turnover: It is essentially an accounting dimension that is used to enumerate the extent
of efficiency of a corporation in offering credits and at the same time collecting back the
debts (Cucchiella & Rosa, 2015).
Review of the performance from the perspective of operations
Review of the financial performance of the firm reveals the fact that the net asset turnover of
the company Cromwell Tools has increased to 2.50 during the financial year 2015 as
compared to the figures registered in the previous years. It can be hereby stated that higher
ratio implies towards greater efficacy of the firm to aptly utilize the available assets. Thus, it
can be considered as a favourable financial condition for the firm. Again, debt turnover ratio
has also increased for the firm to 4.98 during 2015 in comparison to previous years.
Generally, the higher the debts turnover ratio, the better it is. Essentially, this represents
effective collection on the part of the company (Cucchiella & Rosa, 2015).
Thus, from the perspective of operation it can be hereby mentioned that financial health of
the firm is favourable from the perspective of operations.
Structure Ratio:-
Current Ratio: It is essentially a ratio that enumerates potential of a corporation to disburse
diverse obligations that are primarily short term in nature (Vogel, 2014). The current ratio of
the firm has been somewhat steady over the period of five years and with the current ratio

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standing 2.77 for the year 2012 whereas in the year 2013 it stood 2.60. In the following years
of 2013 the current ratio stood 3.33 while in the subsequent year it stood 2.87 respectively.
An assertion in this regard can be bought forward by stating that the current ratio has been
steady and the company has been successful in meeting its short term debt obligations.
Liquidity Ratio: This ratio is mainly used to gauge potential of a corporation to repay or pay
back their debts (Grant, 2016).
Review of the performance from the perspective of structure
Current ratio is recorded to be 2.87 during the year 2015 and is observed to have decreased in
comparison to the year ago period. The standard current ratio is said to be 2:1 that necessarily
implies that current assets is double to that of the current liabilities. Considering it from the
perspective of the yardstick, it can be said that the current ratio shows a favourable condition.
However, the same has declined in comparison to the year ago period. The liquidity ratio
reflects the capability of the corporation to repay current liabilities. The liquidity ratio of the
firm has decreased to 1.71 during the period 2015 as compared to the year ago period that is
2.06. This shows that the company’s potential to pay off the debts has decreased. Thus, it can
be hereby inferred that the liquidity condition of the firm Cromwell Tools has deteriorated in
comparison to the previous periods.
Per Employee Ratio:-
Profit Per employee: It is a ratio that is measured as firm’s acquired profits are divided by
the total number of employees of the firm (Grant, 2016).
Turnover per employee: It is a ratio that is enumerated as firm’s revenue is divided by the
firm’s present number of workforce
Review of the performance from the perspective of per employee

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The profit per employee of the firm Cromwell Tools has declined significantly to 5629 during
the year 2015 as compared to the previous year periods. This shows that profit acquired by
the firm for each and every worker has declined reflecting decline in overall productivity of
the corporation (Robinson et al., 2015). In addition to this, the turnover per employee has also
decreased during the year 2015. This reflects that turnover of the corporation for per person
has declined reflecting unfavourable financial condition of the corporation. Thus, it can be
hereby inferred that productivity per employee has lessened for the firm Cromwell Tools.
Main risks as well as opportunities the company is facing and the way the company is
addressing the same
The main threats/risks faced by the Cromwell Tools include the following:
-Altering consumer purchasing behaviour from online platforms can be considered to be risk
to the subsisting physical infrastructure driven by supply chain form
-Increase in strengths of regional distributors also delivers a threat in certain markets since
the competition is playing greater margins to the regional distributors (Robinson et al., 2015)
-Replication of the counterfeit and low quality product can also be considered to be threat to
the company Cromwell Tools
- Presence of intense competition – stable profitability has also enhanced the total number of
participants in the industry over the past two years that has put downward strain on not only
profitability but also on total sales.
-No standard supply of innovative products. However, over the years the corporation has
developed several products; nonetheless those are frequent response to the development by
the other players. Secondly, the supply of novel products is essentially not regular, thereby

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leading to high as well as low swings in the number of sales over a specific time period
(Wahlen et al., 2014).
Different opportunities of the firm Cromwell Tools
Diverse opportunities of the firm include the following:
- Cromwell can be considered to be leading British owned distributor of industrial products
has more than 1,800 employees.
 Presence of 67 Distribution Centres globally shows that the company has a strong
community of dealers and strong distribution network
 An export segment functioning in more than 50 nations and 5 continents
 A panel of “time-served” engineers of sales in each segment helps in
 International product research, product evaluation unit, a panel studying production
mechanisms globally helps in development of new products and innovation of product
 An exclusive every day inter-company delivery scheme helping swift admittance to
products, services as well as information (Frias‐Aceituno et al., 2014).
Threats and opportunities analysed from the financial dimensions
The corporation Cromwell faces the risk of lower productivity per employee in the
present period. Thus, the management of the corporation can consider methods for
developing and raising productivity of the employees. So, augmentation of profit per
employee and turnover per employee can help in enhancing the financial condition of the
firm. The company management can consider reduction of cost and enhance overall
turnover as well as productivity and aid in planning for change as well as growth. The
decline in the liquidity ratio can also expressed as a threat to the overall liquidity of the

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corporation. Again, the decrease in the profit margin and return on total assets can be
identified as a threat to the financial condition of the firm. Therefore, the management of
the corporation can consider ways of enhancement of profit of the corporation.

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Conclusion and recommendation
Based on the findings of the above study, it can be hereby stated that management of the firm
Cromwell Tools can devise strategies for addressing the detected problems of lower
productivity as well as lower profitability of the firm. Again, the management of the firm can
also consider innovative and advanced ways of enhancement of profit of the firm and
maintain the efficiency of the firm in terms of operation.
Critical evaluation of the appropriate pricing strategy
For a business it can make the use of the several variety of pricing strategies at the
time of selling the product or service. A business can undertake the decision of setting the
price in order to increase its profitability for every amount of unit sold in the market (Dutta
&Reichelstein, 2017). For a business to implement the appropriate pricing strategy
contribution margin based pricing strategy is regarded as one of the most appropriate method
of pricing. The contribution margin based pricing strategy can be defined as the pricing
strategy which works without any mentioning of the gross margin percentage.
This methodology helps in maximising the profit that is derived from an organization
assortment depending upon the differences between the price of the product and variable cost
(Hemmer &Labro, 2016). Similarly, for the Cromwell Group Holdings Limited the adoption
of the contribution margin based pricing strategy will help in making one assumption
concerning the association between the products price and the number of the units which can
be sold at that price. The contribution of the products to the total profit of Cromwell Group
Holdings Limited would be maximised when the price is selected that would increase the
contribution margin per unit of the total number of units sold by the firm(Dutta
&Reichelstein, 2017).