Financial Analysis

[Name of the Instructor]

Introduction

A2Z is a maritime ship owing company that provides services of chartering the ships. The company deals in long-term contract which deals in land transportation. The company is currently facing some downturn in their business. The company's upper hierarchy has called a meeting to highlight the reasons of the decline in the business not from a financial perspective but also from a marketing and chartering perspective. The analysis of financial ratios will enable the decision makers to find out the problems faced by the company due to financial reasons, while marketing analysis will help in determining the weaknesses which the company is facing due to not properly promoting its services to the current and new entrants in the market. The basis of the shipping company is to control the increasing cost of chartering, by identifying first the reasons of its increase, then evaluating it and finally controlling the increase in the cost. The board of directors will present the lines of enquiry in order to find the loss that is occurring to the firm's profits. The board of directors will present enquiry report by highlighting the reasons with the help of the ratios the current position of the firm.

Discussion

The ratios below show a proper calculation of the firm's financial ratios indicating areas where problems are occurring in the company.

Ratios

1998

1999

2000

Net Profit Margin

37%

26%

18%

Current Ratio

1.25

1.14

1.07

Liquidity Ratio

0.69

0.62

0.61

Debt to Equity

1.21

1.10

1.35

Break-even Sales

0.42

0.49

0.58

Debt Collection

0.78

1.00

0.94

Many companies have better marketing, sales or technology situations than compared to their financial positions. The financial managers used the financial ratios to present the lines of enquiry to the board of directors. The three areas to be given an enquiry are: the decreasing profits, increasing cost of the land transportation and non-availability of cash. First an enquiry is presented on the decreasing profits and increasing costs. The A2Z Shipping Company has provided its profitability ratios. According to Koen, (1999, pp.19) the profitability ratios are a representation of the firm's ability to meet its obligations or targets. These ratios compare the income generated by the firm in relation to the sales or revenue earned by the firm. There is stability in the firm's revenue earning capability and over the three years revenue has increased regularly, as the revenues are increasing the firms shipping and shore operating cost is also increasing. The increase in cost is affecting the firms' gross profit margins that are decreasing since 1998 till 2000 due to persistent increase in the cost along with the revenue. The net profit margin which shows the amount of expenses incurred on the each unit of sales. The net profit margin of A2Z Shipping Company are not decreasing as much as the gross profit margin is, this is because the expenses are not increasing drastically which is a positive sign for the company. The third is the cash enquiry, the banks while providing loan against the charter will need maximum amount of cash availability so that they have security against the debt provided by the banks. The major reason of decline ...