Abc Financial Analysis – Cash and Cash Equivalents
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FINANCIAL ANALYSISGROUP 1Bùi Minh PhươngHoàng Thị Hà GiangLê Thùy LinhVũ Thị Khánh LyNguyễn Thùy DươngTrần Thị Gái LinhLê Minh DũngPhan Anh VũLư Cẩm HàGeneral assessments of ABC’s financial situation through some points in the company’s financial statementsCash and cash equivalentsCash and cash equivalents are very important for the liquidity of a business. Companies with high amounts of cash and cash equivalents are better able to get through hard times when sales are low or expenses are particularly high. In the situation of ABC, from the below chart, we can see that the company only has a very small amount of cash and cash equivalents. It’s about 1% of total assets. It indicates that the company has a weak liquidity position. Although this number had a slightly increased in this period, it still warning that the company will get troubles with payments of its liabilities.[pic 1] Chart 1: Percentage of cash and cash equivalents over total assetsCurrent LiabilitiesFrom the company’s balance sheet, we can see that current liabilities have a big portion of total liabilities. This number had a small fluctuation in the period from 2013 to 2015. As mentioned above, the company has a weak liquidity. So, payments its current liabilities are a difficulty for the company.[pic 2] Chart 2: Percentage of current liabilities over total liabilitiesRetained earnings[pic 3] Chart 3: Percentage of Retained earnings over equityThe chart indicates that the company’s equity is mainly from the retained earnings, share capital is very small. It also means profits of the company were kept to reinvested in business and dividends paid to shareholders are very small amount. If the company continues pay a small amount of dividends, in long-term development company will not attract other investors.Cost of sales and Gross profitThese two components of income statement have a negative relationship. If cost of sales is high, the gross profit will low. In the case of ABC company, as shown in the chart below, in 2013 operations of the company were relatively good. Cost of sales was 65% of revenue and gross profit was 35%. But in the next two years, cost of sales rose significantly to 76% in 2014 and 75% in 2015. It cause the gross profit decreased sharply to around 25%. A low gross profit along with a high expense cause the company’s income was at a low level. If this trend continues, in the next years company’s operations will get difficulty.
[pic 4] Chart 4: Percentage of cost of sales and gross profit over revenueAnalysis through financial ratiosAfter having an overview about financial situation of the company through condensed common sized, now we move to analysis financial ratios of company to have information about company’s health finance.A financial report is an informational document about the financial health of a company or organization. Ratios are also helpful tools in financial report and forecasting. Ratios allow entrepreneurs to set specific goals and to easily track progress toward those goals. By using data from the balance sheet and income statement given in the appendix, we will calculate ABC’s financial ratio for 2 years- from 2013 to 2014. In addition, there are some relative comparison between ABC’s ratio and industry average. It is important to choose financial ratios that are applicable to the business at hand. There are hundreds of financial ratios available, some of which apply to all businesses and some of which are industry-specific. In this reporting, we will discuss about some of the most common financial ratios: Liquidity ratios, activity ratios, leverage ratios and profitability ratios. Table 1: Financial ratios of ABC companyFinancial ratiosABC CompanyIndustry averageEvaluation of results2013201420152014 to 20132014 to Industry2014 overallCurrent0.830.740.81BadBadBadQuick0.780.700.75BadBadBad Fixed assets turnover2.132.302.50GoodBadOKTotal assets turnover1.501.601.80GoodBadOK Debt to assets0.370.380.36BadBadBad Long term debt to total assets0.080.060.07GoodGoodGood Long term debt to total capitalization0.120.080.10GoodGoodGoodTotal Debt to stockholders Equity0.590.620.56BadBadBadLong-Term Debt to stockholders Equity0.130.090.11GoodGoodGoodGross Profit Margin0.350.240.25BadBadBadOperating Profit Margin0.210.080.10BadBadBadNet Profit Margin0.150.050.05BadBadBadROA0.220.070.10BadBadBadROE0.350.120.15BadBadBad