University Financial Analysis of Forge Group Ltd Case Study

This case study presents a financial analysis of Forge Group Ltd, focusing on the application of ratio analysis to assess the company's performance from 2010 to 2014. The analysis includes calculations and interpretations of key ratios such as the current ratio, receivables turnover, inventory turnover, return on net sales, return on total assets, and return on equity. The analysis highlights the company's liquidity, efficiency, and profitability trends over the specified period, offering insights into its financial health and operational effectiveness. The case study also addresses specific scenarios, including decision-making recommendations for a school, identifying potential causes of variances, break-even analysis, and risk management strategies. The student has provided a comprehensive analysis of the company's financial performance and risk mitigation strategies.

Running Head: FINANCIAL ANALYSIS 1
FINANCIAL ANALYSIS

Running Head: FINANCIAL ANALYSIS
Table of Contents
Question 1 b) Ratio analysis........................................................................................................................3
Question 2...................................................................................................................................................5
Question 3...................................................................................................................................................5
Question 4b)................................................................................................................................................5
Question 5...................................................................................................................................................6
References...................................................................................................................................................7

Running Head: FINANCIAL ANALYSIS
Question 1 b) Ratio analysis
Ratio analysis is one of the techniques as it is used to measure the financial performance
of the business. The financial performance of the company is sound and smooth and this can be
found out with the help of analyzing the parameters. The parameters are such as liquidity,
profitability, Activity ratios, and Capital structure ratios. Amongst these parameters, the
categories are further divided into various ratios individually that can be analyzed either against
the company standards or on the basis of the previous years (Robinson, Henry Pirie & Broihahn,
2015).
The current ratio of the company was 1.91 and the same was 0.374 in the year 2014. The
current ratio determines the ability of the company to find out how well the company is able to
payback the liabilities. The current ratio of the company fluctuates and yet the current ratio is not
up to the mark (Pandey, 2015).
The profitability of the company is declining overall whether in terms of return on equity,
return on net sales and return on total assets. The return on equity is the ratio which determines
the return the investors will get once they invest in the shares of the forge metal. The return on
total assets earlier improved from 37.9% to 73.4% in comparison to the previous year. The
returns on assets determine how well the assets are utilized to get the returns. The return on
assets of the company is 37.9% and increased to 73.4% which is mainly due to the optimum
utilization of the assets. The profitability position of the company is okay and it needs more
attention from the side of the management so that the investors can get their share positively
(Pratt, 2016).

Running Head: FINANCIAL ANALYSIS
The efficiency of the company is judged by the turnover ratios. The fixed asset turnover
ratio is the ratio, which determines the ability of the company, how well the company is able to
utilize the fixed assets to generate the sales of the company. The fixed asset turnover ratio of the
company is 9.19 and it increase to 11.26 in the year 2013. It also increased in the year 2014 to
14.73. The inventory turnover ratio is the ratio which determines how well the inventory of the
company is utilized and in how many days the cash is realized back by the company. The
inventory turnover ratio of the Forge Metal is 42.63 days in the year 2011 to 51.24 in the year
2012. The same was 83.69 in terms of the days and it is strongly recommended to the company
to improve the collection ratio as this would improve the cash conversion cycle of the company.
The accounts receivables in terms of the times are 0.17 and it increased in a positive way as the
days were reduced from 62 days to 42 days. In the year 201 the days increased from 43 to 92.70.
Hence, the overall efficiency position of the company is satisfactory and it needs more refining
from the side of the company (Kaplan & Atkinson, 2015).
The solvency position of the company involves the proportion off the debt and the equity. The
debt to equity ratio of the company is 0.04 in the year 2011, and thereafter the ratio increased to
0.45. The fluctuations were high and the ratio decreased from 0.18 to 0.017 in the year 2014.
Overall there is a less burden of the financial leverage of the company and the ability of the
company to pay back the times interest coverage ratio is 3.70 which sounds good (Maskell,
Baggaley & Grasso, 2016).
Form the above analysis it can be concluded that the overall position of the company is sound
and smooth and the proper initiatives as mentioned above can be taken by the organization to,
make sure it sustains for the longer time period (Nielsen, Mitchell & Nørreklit, 2015).

Running Head: FINANCIAL ANALYSIS
Question 2
The option that is recommended to the school is the second option tends to be more feasible as
the risk assessment is lower in this option in comparison to the previous option. The other non-
financial considerations that need to be taken while making this decision is the external factors
that are affecting the cost of the replacement, the cost of resurfacing, the removal of the
contaminated soil.
Question 3
The potential causes of the variances are the difference between the actual units and the budgeted
units. The actual units are lower than the budgeted units and moreover the overall market share is
also low, for the actual units.
Question 4b)
Breakeven is a condition where the revenue and the costs are equal and there is no profit and no
loss. This situation determines how much units or exact goods are required to be kept by the
company to meet the requirements. In the present scenario of the birthday party, Giggles was not
able to break even as the costs were beyond the fees charged by the customers. The operating
costs were high and the opportunity costs were sinking. The amount of the fixed costs such as
party costumes and cake shall be lowered down. On the other hand, the fluctuating cost is more
than the fixed costs. Hence the company is not able to achieve the breakeven.
In order to adjust the fee changes or the schedule, Mark can make a budget in advance so that the
proper funds can be allocated to the respective cost centers. Secondly the fee schedule can also

Running Head: FINANCIAL ANALYSIS
be replaced and renewed in case Giggles manufactures the costumes itself or gets a contract for
the yearly basis and not on the basis of the birthdays.
Question 5
Particulars Identification of the
risk
Strategy to mitigate the
risk
Reason to suggest the
strategy
CASE A Risk of the blast of the
firework, or the loosing
of the material
The new warehouse
shall be built where all
the fireworks are kept.
The strategy is used to
keep the health on
priority.
CASE B Risk of the loss of the
customer
Keep the foods in the
storage for 12 years
maximum and for
longer time period
choose the foods that
have less effect.
This strategy is
suggested so that the
risk of the deterioration
of the health can be
avoided.
CASE C Risk of the customers
shifting to the hard
copy of the books.
The online books can
be converted into the
offline book
The strategy is
suggested to keep a
balance between the
online and the hard
copy users.
CASE D Risk of the loss per
shipping cost
The in house cost can
be reduced. Further the
shipping costs can be
reduced by availing the
long term contract.
The strategy is
suggested to keep a
balance between the
percentage of the profit
over the revenue
CASE E Risk of the transference
of the amount in the
wrong head.
Keep the accounting
transactions in the
digital mode to find out
any variance in the
entry
This strategy is
suggested so that the
double amount is not
debited to the head of
the labor.

Running Head: FINANCIAL ANALYSIS
References
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Maskell, B. H., Baggaley, B., & Grasso, L. (2016). Practical lean accounting: a proven system
for measuring and managing the lean enterprise. Productivity Press.
Nielsen, L. B., Mitchell, F., & Nørreklit, H. (2015, March). Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1,
pp. 66-82). Taylor & Francis.
Pandey, I. M. (2015). Essentials of Financial Management, 4th Edtion. Vikas publishing house.
Pratt, J. (2016). Financial accounting in an economic context. John Wiley & Sons.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.