FINANCE

Finance

Finance

Introduction

This report aims to analyze the financial position of B.E Limited. The analysis shall be based on the most recent annual financial statements available for B.E Limited . The scope of analysis shall be limited to the financial strengths and weakness of the company through its financial statements of the last year and previous years.

Ratio Analysis

The ratio analysis involves comparisons. Different ratios of the company are calculated with the given data of the company from (financial statements and balance sheets). (Frank, 2003)The ratio analysis provides in-depth and timely information to the management for critical strategic decision making.

Profitability Ratios

Profitability ratios explain the performance of an organization in terms of the profit it earns. They include return on assets, return on equity, profit margin and gross margin

Gross margin

=

GP

T

For 2009

=

350,611

=

83.5%

420,000

For 2008

=

357,566

=

72.2%

495,225

For 2007

=

510,011

=

90.4%

564,228

Net margin

=

P

T

For 2009

=

107,294

=

25.5%

420,000

For 2008

=

124,222

=

25.1%

495,225

For 2007

=

255,518

=

45.3%

564,228

Return on capital employment

=

PBIT

TC

For 2004

=

169,340

=

42.7%

397,019

For 2003

=

187,533

=

60.5%

310,048

For 2002

=

378,545

=

187.6%

201,775

Return on sales

PBIT

T

For 2009

169,340

=

40.3%

420,000

For 2008

187,533

=

37.9%

495,225

For 2007

378,545

=

67.1%

564,228

Liquidity Ratios

Liquidity ratios enable the organizational management to analyze their position to meet the day-to-day requirements of the organization and to pay off its short-term debts.

Current ratio

=

CA

CL

For 2009

=

294,833

=

4.03

73,145

For 2008

=

249,017

=

1.95

127,875

For 2007

=

146,068

=

4.08

35,775

Quick ratio

=

CA-S

CL

For 2009

=

208,473

=

2.85

73,145

For 2008

=

208,517

=

1.63

127,875

For 2007

=

82,939

=

2.32

35,775

Stock holding period

=

S x365

CoG

For 2009

=

31,521,400

=

454.3

69,389

For 2008

=

14,782,500

=

107.4

137,659

For 2007

=

23,042,085

=

425.0

54,217

Debtor days

=

TD x365

T

For 2009

=

71,877,260

=

171.1

420,000

For 2008

=

64,368,480

=

130.0

495,225

For 2007

=

17,479,850

=

31.0

564,228

Creditor days

=

TRC x365

PU

For 2009

=

20,739,300

=

251.54

82,450

For 2008

=

30,184,405

=

254.20

118,742

For 2007

=

8,358,500

=

185.28

45,112

Turnover on capital employment

=

T

TC

For 2009

=

420,000

=

1.06

397,019

For 2008

=

495,225

=

1.60

310,048

For 2007

=

564,228

=

2.80

201,775

F. asset turnover

=

T

FA

For 2009

=

420,000

1.42

295,125

For 2009

=

495,225

1.54

321,210

For 2009

=

564,228

1.57

359,500

Working Capital Ratios

Activity ratios, explain the performance of an organization. They include inventory turnover and total asset turnover.

W. Capital turnover

=

T

WC

For 2009

=

420,000

=

1.89

221,688

For 2008

=

495,225

=

4.09

121,142

For 2007

=

564,228

=

5.12

110,293

Asset turnover

=

T

TC

For 2009

=

420,000

=

1.06

397,019

For 2008

=

495,225

=

1.60

310,048

For 2007

=

564,228

=

2.80

201,775

Gearing Ratio

Gearing, also termed as leverage, portrays the organizational financing policies. It reflects the way an organization raises funds for investments and other organizational purposes. Gearing ratios includes debt to assets ratio and debt to equity ratio.

Gearing ratio

=

D

D+CnR

For 2009

=

0

0.0%

397,019

For 2008

=

0

0.0%

310,048

For 2007

=

0

0.0%

201,775

Debt/Equity ratio

=

D

SE

For 2009

=

0

=

0.0%

397,019

For 2008

=

0

=

0.0%

310,048

For 2007

=

0

=

0.0%

201,775

Interest cover

=

PBIT

I

For 2009

=

169,340

=

10.37

16,325

For 2008

=

187,533

=

4.15

45,178

For 2007

=

378,545

=

29.40

12,875

Critique on management's dependency on financial data

Manager can not depend fully on this data as Financial ratios come with some inherent limitations which include;

Ratios in themselves are meaningless as they are only pointers to where a company should be.

Some ratios lack standard definitions which could hinder comparability.

Data used are historical and maybe out of date, so more recent information might limit its relevance.

Financial statements are subject to manipulation by management and therefore reduce the reliability of ratio analysis.

Risks are never the same, even within the same industry, therefore the ratio comparison with other companies may be less consistent.

Risks are never the same, even within the same industry, therefore the ratio comparison with other companies may be less consistent.

Appendix 2

Budgeting systems

B.E Limited uses master budgeting systems. The budgeting done in BE limited is very comprehensive and it prepares its financial budget on monthly and annually basis as well. The budget analysis of the company provides with the targets and constraints of the company and the accurate interpretation of the budget is vital in decision making. (Donovan 2006, Pp. 15-32)Budgeting is a part of the financial planning which is structured to feature projections on income ...