APA RESEARCH PAPER

APA Research Paper

Kindly go to Final Paper (Adjusted) in Appendix

Operational Strengths & Weaknesses - Horizontal Analysis

The sale revenues of the company have been fallen during the period. The sales revenues have decline drastically from $5.9 Millions in 2007 to $5.08 Millions in 2008 (a decline of 15%) whereas costs of production have fallen non-linearly from $4.3 Million to $3.7 Million (a fall of 14.5%). Gross profitability has resultantly declined by a higher amount from $1.64 Million to $1.4 Million, a fall of 16.3%. This is a major area of concern as the non linear trajectory followed by sales revenue and production costs means that the economic downturn is not the only factor at play here. Other than that despite decline in sale the general and administration expenses has increased by 1.2% over the period of analysis. Therefore the operating profit drastically has fallen by 69.1% that is also a big concern. Inflationary pressures have been subdued as of late and hence one cannot blame the non-linear decline pattern on the economic environment alone and there is a chance that the higher production costs might be an indicator of wastage in the production process (Bloomberg, 2011).

While no major issues are highlighted in either selling expenses or general and administrative expenses, it is worth pointing out that the rise in utilities expense by 11.1% does suggest areas of improvement whereby wastage of electricity etc could be avoided and the leakage of income saved. Apart from this, the fall in operating income stands justified. The company's interest expense has been reducing systematically over the period under review but the lower profitability does suggest a cause for concern since this raises the vulnerability of the company to not be able to meet its debt obligations without eroding the equity base. Overall, the company has shown good control on costs.

On the balance sheet, we find that the company has significant financial slack in the shape of short term investments whereas the company has also recorded a huge increase in cash and cash equivalents. Accounts receivables have fallen in line with sales but the higher inventory levels (inventories increased 3.1% year on year) suggest that production maybe slowing down and the risk of these stocks becoming obsolete is very high. There was no movement except normal depreciation in the fixed asset base.

A 33.3% increase in trade payables suggests the presence of some liquidity problems as the total due to suppliers has been on the rise for 3 years now. No major issues can be inferred from the data on long term liability and the equity portion of the balance sheet.

Operational Strengths & Weaknesses - Vertical Analysis

The vertical analysis reveals more or less the same information as does the horizontal analysis. Once again we find that cost of goods sold have risen as a proportion of the total cost structure. At a time of falling performance, the increase in administrative salary expense and executive compensation as a percentage of sales does not make ...