Financial Analysis of Gentry Electronics & Suggested Remedies

This report provides a comprehensive financial data analysis of Gentry Electronics from 2018 to 2021, addressing the CEO's concerns regarding inventory write-downs, increasing storage costs, and declining gross profit margins. It includes computations of key financial ratios such as current ratio, gross profit margin, inventory turnover days, and quick ratio, justifying the CEO's concerns and discussing the problems, implications, and potential causes behind the changes in these ratios. The report suggests potential remedies, focusing on increasing sales and marketing activities through market research, domestic market expansion, sales channel optimization, online advertising, and competitive pricing strategies. It also identifies potential areas of concern related to the cost of implementing these remedies and the need for trained personnel, suggesting alternative sources of finance like debentures. Furthermore, the report discusses financial and operational risks associated with the proposed solutions and addresses potential corporate governance issues arising from the suggestions made by Erica and Jeff.

Using Financial Data

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Computing Ratios....................................................................................................................3
2 Justification for Erica’s concern and discussion regarding problems, implications and
potential causes............................................................................................................................3
3. Potential Remedies..................................................................................................................5
4. Discussing the areas of concern raising from the above remedies and suggesting alternative
sources of finance........................................................................................................................7
5. Two financial and operational risks the company is likely to face and two corporate
governance issues regarding the suggestions made by Erica and Jeff.........................................8
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................2

INTRODUCTION
Financial data is referred to as the total of all the information that is related to the
financial whereabouts of the company. Based on the financial data the performance of the
company is evaluated. The formulation of strategies involves the usage of financial data. The
report will compute some of the profitability, liquidity and efficiency ratios for a case study
company named Gentry Electronics for the years 2018 to 2021.
This report will use the given information and ratios calculated for justifying the CEO’s
concern. On the basis of the report the problems, implications and potential causes as the result
of changes in the ratios over the years will be outlined.
The report will suggest some remedies to the company for correcting its situation. Two
alternative sources of finance will be highlighted. Further the report will be discussing the
financial and operational risks that will be faced by Gentry Electronics for adopting the
suggestions by Erica and manager Jeff. Lastly the report will be discussing possible corporate
governance issues.
MAIN BODY
1. Computing Ratios
PARTICULARS
COMPUTED VALUES
2018 2019 2020 2021
Current Ratio 2 2.25 2.41 3
Gross Profit Margin Ratio 48% 41% 37% 33%
Inventory Turnover Days 0.11 0.13 0.13 0.14
Quick/Acid Test Ratio 1 1.10 1.12 1.45
2 Justification for Erica’s concern and discussion regarding problems, implications and potential
causes
Erica Harding the CEO of Gentry Electronics had called meeting to share her concerns
regarding the aspects of firm’s performance. The key areas of her concern are that the company
from the last three years have been found itself in a state of forceful major write down in the

value of inventory the reason behind the fall in the book value of inventory as compared to
market value is the obsolescence of the inventory. This affect is seen in the fall of the gross
margin ratio of the company over the four year. The justification here is that the obsolescence of
the inventory at high levels have resulted in the increased costs of the company leading it to earn
less gross profit.
The another area of concern of the CEO Erica is that the cost that company incurs on the
storage of inventory has been increasing. The inventory is getting highly diverse so the
company’s warehouses are not sufficient for storage purposes. This has made the company to
rent an additional of four storage houses to meet its storage demands. The situation is clear from
the gross margin ratio computation of the company. The ratio is constantly falling over the year
reflecting the firm’s inability to control its direct expenses.
The percentage of inventory of the total assets is was 20% 5 years ago and in the current
position it is more than 35%. The concern is justified on the basis of computed current ratio.
Current ratio is calculated by dividing the current assets by the current liabilities (Zavadskas and
et.al., 2018). The current liabilities of the firm have been increasing each year this implies that
the current ratio must decrease. But in ratio as per the calculations is 2 for the year 2018 and has
increased and reached to 3 for the year 2021 the reason behind is high current assets has the
result of increasing inventories.
The ideal inventory turnover days’ ranges between 5 to 10. But the company’s turnover
days over the past years are 0.14, 0.13, 0.13 and 0.11 for years 2021, 2020, 2019 and 2018
respectively. The possible reasons behind the company experiencing bad inventory turnover days
is poor sales because of weak marketing strategy and high inventory (Mostafa, Montemagno and
Qureshi, 2018). The problem that the Gentry Electronics is facing is because of the goods offered
to the consumers are outdated and also the marketing by the company is facing problems.
The current ratio of the firm for the year 2018 was ideal ratio. Ratio indicates that for
each of its short term liability Gentry Electronics had twice current assets. The company was
capable enough to pay for its current liabilities. For the year 2019 the current ratio increased to
2.25 times the possible reasons might be that the change in firm’s current liabilities was lower
than the change in its current assets. The reason behind the increase in current ratio are mainly
two firstly that the current liabilities of the firm has fallen making the ratio rise. The other reason
can be that the current assets of the firm has increased. From the data available for the Gentry

Electronics the firm’s current liabilities have not decreased in fact the firm’s short term liabilities
as increased so the only reason behind the increase from the previous year is rise in current
assets. In the year 2021 the firm’s current ratio declined slightly that came as 2.41. The reason
behind this slight change is that the current assets of the firm has increased but the proportion of
change was less than that for the year 2019 (Bontempo and et.al., 2019). Year 2021 recorded
current ratio as 3 times. The reason behind this increase is that the current liabilities have
increased at a low pace as compared to the increase in years 2018 to 2019 and 2019 to 2020. And
the change in current assets is high in comparison to the same years. The current liabilities being
low means that the company have paid off some of its liabilities but the current assets are still
very high meaning that the increase is mainly due to increase in inventory.
The ideal quick ratio was maintained by Gentry Electronics for the year 2018 that is 1:1.
This implies that the firm had one liquid asset that can be easily convertible into cash for paying
each of its short term liabilities. The ratios are 1.10, 1.12 and 1.45 for the years 2019, 2020 and
2021 respectively. From the previous interpretations it is clear that the frim have higher
inventory and weak sales problem still the liquidity ratio of the firm is high it means the firm has
receiving funds from some sources (Lacombe and Bazinet, 2021).
3. Potential Remedies
The remedies that can help the firm in improving its alarming situations are that the firm
should firmly focus on the increasing its sales and marketing activities. For increasing sales
company should do market research for analysing the demands of its consumers. The research
should be based on the customer and answers the company questions regarding what to order and
produce, the firm should make its operations more consumer needs based (Deepak and
Jeyakumar, 2019). The raw materials that the firm order for its production unit must be in
accordance to the needs of its customers and forecast of the future needs of its customers. Doing
this will help the company from getting out of the situation where its consumers report
complaints regarding unavailability of desired goods. The consumers will get the products that
they want as the production of the company will be focused on the current demands of the
consumer and their future anticipated demands.
The company should focus on expanding its domestic market to increase its sales by
increasing the market share. Expansion processes should be done systematically by proper
market research of the domestic market in which the company wishes to expand. Expansion in

new market will lead to increase in demand for the goods offered by Gentry Electronics. This
increase in demand will be meet by the company through its proper attention on the marketing,
sales and distribution activities.
There is need for the company to improve and enhance its sales channels. Through
optimization of sales channels the company will successfully reach new customers of the market,
leading the company to have effective control over its market and lastly the overall profitability
of the company will hike (Vieira and et.al., 2019). The enhancements in the sales channels can
be bought by the company through the providence of effective training to its personnel. Further
the company can try to hire sales representative on contractual basis. The retail outlets of the
company need to be increased. Increasing the number of retailers will substantially help the
company to raise its sales. Further the strategy should be formulated by the company regarding
the entry of company in the online market.
Further the company should involve in extensive marketing activities through constant
improvements in its current marketing ways. The company is not experiencing the desired
outcomes from its marketing activities (Krizanova and et.al., 2019). This calls the need for
change in the marketing strategy. The company should start advertising using the online
platforms. Social networking sites like Facebook, Instagram, Twitter will be of great help in
reviving the market strategy of the company. Official pages of the company should proactively
post the recent stock available for selling purposes with the company. Both wholesale and retail
sales by the company will increase.
The pricing strategy of the company needs to be revised. Company should keep the price
of the latest arrivals high and when the trend is about to change the company should sell the
products at discount. The discounted sales by the company can be promoted by social media sites
of the company at also through the websites on which the company can sell its goods as a part of
its E-selling.
The company should also keep an eye on its competitors by analysing their strategies.
Also the price of the company should be competitive from the competitors in the market. Gentry
Electronics should be the first to exploit every opportunity from the market strengthening the
market stand of the company and earning high revenue consecutively over the years making
itself a benchmark of the industry. The regular analysis of competitors will help the company to
adapt to and respond to any change in its external environment.

Relations of the company with the community at good knot will exert positive impact
over the sales of the company majorly. The company should focus on increasing its visibility in
the community events (Hartmann and Lussier, 2020). Company can also sponsor some events
that are based on community service. The increase visibility will impact the image of the
company and enhance its sales largely.
Customer service is the another major factor that has its effects over the sales of the
company. Gentry Electronics’ priority should be enhancement in the costumer services of the
company. Good customer service makes a relationship with the customer initiating them to
purchase again and again from the company. Thus the brand loyalty of the company will increase
leading to consistency in the sales volume. Also the non-profitable products must be stopped by
the company to produce.
4. Discussing the areas of concern raising from the above remedies and suggesting alternative
sources of finance
Considering the above remedies to cop up which the problems of Gentry Electronics the
two areas of concerns that the CEO Erica and the management would possibly have will be Cost
and Trained Personnel. The remedies that have been suggested above are based on increasing the
sales and strengthening the marketing activities of the company. The suggested remedies involve
customer need research, market research, online selling, price strategy, competitor analysis,
community relation enhancement, improvements in customer satisfaction and social media
advertising. All these activities require availability of sufficient finance. Performing research is
expensive affair, analysing the competitors require professional staff, building community
relationship through sponsoring events also requires funds to be available with the company.
Further funds are also required for starting selling online.
Sources of Finance Debentures: Debentures are long term sources of debt finance. They have a fixed interest
rate and matures on a certain specified date. Company opting to this source of finance
will have to pay interest amount yearly and the principal amount that is borrowed on the
date of maturity. It is a type of unsecured bond. It means for raising funds through
debenture form of long term debt the company does not require it to be backed by any
kind of collateral (Sen and Mehta, 2018). The term for debentures is more than 10 years.
Company can also issue debentures that can be converted into equity shares in the future.

Coupon payments are to be made by the company on yearly basis. The contract of
indenture will be made with the company and the bondholders. The debt offering date,
interest payments timing and method based on which computation of interest will be
done and rest features of the bond will be specified in the contract. Through debentures
company can raise funds for carrying research, expansion purposes and making the
marketing strategies of the company stronger. Trade Credit: It is one of the simplest form of finance. It is the most important form of
short term source of finance using which Gentry Electronics can fund the requirements of
increasing demand due to its expansion processes. The increasing demand for raw
materials can be successfully meet. Trade credit will enable the firm to buy goods from
the suppliers without making instant payments in cash or by cheque to them. The
pressure on the cash flow of the firm can be managed effectively through using trade
credit as the short term of finance. The capital requirements of the firm can be reduced
and managed through trade credit (Chen, Ma and Wu, 2019). This source of finance is
used for raising the funds quickly. Depending upon the trading activity of Gentry
Electronics the amount that can be raised through this source can be defined. The
agreement of trade credit is easily organisable. When the conditions of the agreement are
met it becomes relatively easier to maintain. Cost arising from raising working capital
finance from this source of finance is low.
5. Two financial and operational risks the company is likely to face and two corporate
governance issues regarding the suggestions made by Erica and Jeff
Financial Risks Liquidity Risk: The ability of the firm to pay for its debts is known as the liquidity of the
company. Liquidity risk is a type of financial risk. Liquidity risk is further of two types
market liquidity risk and funding liquidity risk. The potential risk that the company is
likely to face is funding liquidity risk (Svetlova and Thielmann, 2020). It is a situation in
which Gentry Electronics will find itself incapable of meeting its short term liabilities, it
may happen that the liabilities can only be met by paying an uneconomic price. The high
liquidity risk force the companies to sell the assets in order to bring in the cash for
meeting its outstanding obligations.

 Market Risk: The possibility of an enterprise towards experiencing the losses because of
the changes in the market variables such as price and volatility. Market risks are of
different types like equity risk, interest rates risk, currency risk, margining risk,
commodity risk, etc. (Dutta, and et.al., 2021). The company faces commodity risk as the
book value of the inventory of the company falls as compared to the market value of its
inventory. This can be possible reason behind huge losses being incurred by the firm in
future.
Operational Risks Legal Risk: Legal risk arises due to noncompliance of the laws applicable to the
company. It is a kind of operational risk that arises due to performance activities that
breaks the law (Pritchard, 2018). The Gentry Electronics is likely to face this risk if the
company follows the ideas of the Jeff who is one of the manager at the company. Fraud Risk: The company prone to the type of operational risk namely fraud risk if the
company follows the ideas of the manager Jeff who says that the company should start
investing in the foreign securities to show the investors that the company is planning to
expanding even when in reality the company is not focussing on doing so (MADAH
MARZUKI, and et.al., 2020). Thus the operations of the company that are aimed at
creation of situation that misguides the people are related to fraud risk.
Corporate Governance Issues Fairness: Fairness means that there must be fairness in the operations and working of the
company and it should also engage the shareholders in the outcomes of the company’s
processes (Hickman and Petrin, 2021). For being ethical in all the operations of the
company, the company should remain open and fair regarding the operations with the
stakeholders. Transparency: Transparency is one of the pillars of corporate governance. Being
transparent is its affairs means that the company should not hide anything from the
stakeholders of the company (La Rosa, Caserio and Bernini, 2019). The company should
clearly communicates its strategies and any problem it is facing and should keep any kind
of secret but according to the ideas proposed by Jeff Gentry Electronics will not only hide
important details from the stakeholders but also miss guides them.

CONCLUSION
Based on the report the meaning and importance of financial data has been concluded.
The report has calculated gross margin ratio, inventory turnover days, current and quick ratios
for the Gentry Electronics. The report has interpreted the ratios that has been calculated for
justifying the fears of the Erica, the CEO of the company. The problems and causes behind the
problem Gentry Electronics has been facing have been highlighted in this report.
Report has discussed various remedies that will increase the sales of the company and
solves the problems that the firm is facing currently. Following the remedies proposed in the
report the fears or major areas of concern for the company’s CEO can be addressed by the
business leading towards being a successful and profitable entity.
The remedies has drawn the attention of Erica Harding towards the two obstacles that
have been addressed with possible solutions in this report. Further the report has highlighted the
two sources for finance that are suitable and beneficial for Gentry Electronics. Lastly the report
has concluded that there are various financial and operational risks and corporate ethical issues
that the firm could face according to the suggestions by the Erica and Jeff.

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1

APPENDIX
Gross Profit Ratio
Particulars Formula 2021 2020 2019 2018
Gross Profit Sales - COGS
3,10
0
3,20
0
3,09
1
3,28
3
Sales revenue 9428 8674 7536 6840
COGS 6,328 5,474 4,445 3,557
GP ratio
Gross profit / sales *
100 33% 37% 41% 48%
Current and Quick Ratio
Particulars Formula 2021 2020 2019 2018
Current assets 1800 1423 1183 841
Current
liabilities 600 590 525 420
Inventory 925 757 602 418
Prepaid
expenses 0 0 0 0
Current ratio Current assets / current liabilities 3
2.4118
64
2.2533
33
2.0023
81
Quick ratio
Current assets - (stock + prepaid
expenses)
1.4583
33
1.1288
14
1.1066
67
1.0071
43
Stock Turnover Days
Particulars
Formul
a 2021 2020 2019 2018
Cost of goods sold 6,328 5,474 4,445 3,557
Total inventory 925 757 602 418
Stock turnover ratio (In times) 7 7 7 9
Stock turnover ratio (In days)
0.14617
6
0.1382
9
0.13543
3
0.11751
5
2