CONSOLIDATED DENTAL SERVICES

Consolidated Dental Services

Consolidated Dental Services

Financial Appraisal

Year

Inflow

Outflow

Cash Flow

0

 

4000000

(4000000.00)

1

78918

65508

13410.00

2

64026

54999

9027

3

40149

33742

6407

NPV

 

 

($363,518.32)

IRR

 

 

9%

From the above table, we can say that the project should be rejected as the NPV is negative and IRR is below the discount rate.

Past and future financial management

 

2009

2008

Revenue

54,327

47,298

Cost of operations

50,109

43,668

Operating profit

4,218

3,630

Profit after tax

2,954

2,803

Fixed assets

32,008

23,864

Ratio Analysis

FINANCIAL RATIOS

ROCE %

16.67

17.9

operating profit margin %

3.99

4.5

operations to capital employed

418.06

397.4

total asset turnover

1.03

1.04

stock turnover in days

19.44

20.31

debtors turnover in days

52.62

19.38

creditors turnover in days

190.77

142.77

operating cash cycle

-118.71

-103.08

 

 

 

LIQUIDITY RATIOS

liquidity ratio

0.78

0.61

quick ratio

0.63

0.38

 

 

 

SOLVENCY RATIOS

gearing

0.54

0.4

debt to equity %

1.16

0.67

 

 

 

SHAREHOLDER RATIOS

return on equity %

0.17

0.18

earnings per share %

0.27

0.27

dividend yield

9

7

dividend cover

0.0026

0.0013

price earning ratio

0.37

1.85

earnings yield

2.702703

0.540541

The gross profit has reduced slightly because the Consolidated Dental Service offered majority of its products at cheaper rate to promote its operations. With operations revenue increasing because of this marketing strategy, the ratio is bound to be lower. However the gross profit has also shown an increase due to the increased operations which is understandable as they have a direct relationship. But the increase in revenue is more than the increase in gross profit thus shifting the balance towards the denominator.

When analyzed also with net profit, net profit has also shown a decline. Net profit has marginally decreased over the year. This marginal difference could be attributed to an increase in administrative expenses, increased taxes due to new taxation policy guidelines and finance costs (Interest paid). Similar to gross profit, the increase in revenue surpasses the increase in net profits and hence the ratio has shown a decline. However it can be presumed that the new operations strategy would help in not only increase the operations in the future but also improve profits by a good margin.

The Consolidated Dental Service has improved its efficiency in utilizing the shareholder funds when compared to previous years. This increase is warranted and expected because of the increase in profits arising due to increased operations, thanks to the new pricing strategy. Increased profit implies increased dividends payout and excellent returns for shareholders. This also makes it an excellent buy option in the capital markets.

The return on capital has shown an increase when compared to the previous year. This implies the Consolidated Dental Service's earnings before interest and tax has increased over the previous year. Since capital employed has increased in previous years, operations have increased over the year due to high level of investment and this has resulted in higher returns.

The EBIT has fallen from 6.47 to 6.28 essentially due to increase in administrative expenses and cost of operations. These contribute significantly to the earnings before interest and tax for the Consolidated Dental Service. Cost of operations plays a vital role especially in the healthcare industry since more inventories sold implies more cost of goods and this holds good for Consolidated Dental Service also. Thus the increase in operations also results in increased cost of goods sold and the new pricing strategy portrays the increase in cost of goods sold in a blatant manner. All this have a direct hand in the reduction in ...