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Financial analysis of Caltron Ltd's strengths and weaknesses.

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Introduction

´╗┐TABLE OF CONTENTS INTRODUCTION & PURPOSE ????????????????????????2 SWOT ANALYSIS ?????????????????????????????...3 CASH FLOW STATEMENT ANALYSIS ????????????????????.4 RATIO ANALYSIS ?????????????????????????????..5 LIQUIDITY ????????????????????????????????..5 ASSET UTILIZATION ???????????????????????????...6 DEBT UTILIZATION?.??????????????????????????.....7 PROFITABILITY ????????????????????????????........8 CONCLUSIONS & RECOMMENDATION????????????...???.??.....9 APPENDIX A ???????????????????????????????..12 APPENDIX B ??????????????????????????????......13 INTRODUCTION Caltron Ltd was founded by Jenny Jones in 1971. The primary objective of the company was to supply calculators to the business and science communities. In 1999, hesitant to let go of Caltron Ltd, Jones appointed her daughter-in-law Kyla Jacob-Jones to stay updated on trends and continue making improvements. However, with growing competition, troubles at Caltron Ltd began to emerge. PURPOSE In 2001, Caltron Ltd?s performance began to decline amongst its competitors. Many of its competitors have begun to outsource for low-cost labour. That is when the pressure ensued from their independent board members. The old equipment, expensive unions and low-wage developing countries all became factors in increasing competition. Kyla Jacob-Jones must revitalize Caltron Ltd within 2 years using her management skills with no assistance from the parent company Pulsar Computer. If she fails, declaring bankruptcy may be unavoidable. The analysis conducted will provide an insight into the company?s financial performance within the last 3 years and will evaluate trends. ...read more.

Middle

This is much below industry average of 2.5. It indicates that the firm is unable to effectively utilize its assets. Alternative 1: Negotiate for longer payment periods and recover outstanding debt. Caltron Ltd must try to chase as many outstanding payments as they can to increase their assets. Also, negotiating to have some vendors give discounts when they make an early payment could improve accounts receivables in days. Utilizing a deferred payment plan could improve accounts payables in days. This would rearrange the expenses and soften the impact of large purchases on the bottom line. Alternative 2: Lease assets instead of purchasing. Leased equipment does not count as a fixed asset and will improve the ratios. Alternative 3: Increase revenue. Caltron Ltd could increase its asset turnover ratio by moving their products more quickly and having some promotions to draw attention. The assets may be used properly but sales could be slow, which results in a low turnover ratio. DEBT UTILIZATION Debt Ratio 2003: 75% 2001: 42% The industry average is 40%. The increase in debt ratio shows that the company is not leveraged. It is vulnerable to major debt problems like bankruptcy and high interest costs. ...read more.

Conclusion

days 2001: = 301,200/ 2,954,000 * 365 = 37 days Accounts Payable in days 2003: = Accounts Payable/ COGS * 365 = 948,802/ 5,825,900 * 365 = 60 days 2002: 511,267/ 4308192 * 365 = 43 days 2001: =145,600/ 2,422,280 * 365 = 22 days Cash Conversion Cycle 2003: CCC = 108+ 47- 60 = 95 days 2002: CCC = 113 days 2001: CCC= 78 +37 - 22 = 93 days Total Asset Ratio 2003: = 6,854,000 /3,995,978 = 1.72 2002: 3053860/2054189 = 1.49 2001: = 2,954,000/ 1,668,800 = 1.77 Fixed Asset Turnover = Sales/Net Fixed Assets 2003= 6854000/1323203 = 5.18 2002= 5128800/1139340 =4.5 2001= 2954000/544800 =5.4 Debt Ratio 2003: = Total Liabilities/ Total Assets = 2,992,097 / 3,995,978 = 75% 2002= 2054189/3053860 =67% 2001: = 699,082/ 1,668,800 = 42% Times Interest Earned 2003: =EBIT/ Interest = 222,700/ 215,683 = 1.03 2002: 190,768/140,847 =1.35 2001: 276,500/37,875 = 7.3 Gross Profit Margin: 2003: = GP/ Sales = 1,028,100/ 6,854,000 = 15% 2002: 820,608/5128800 = 16% 2001: 531720/2954000 = 18% Net Profit Margin = Net Income/ Net Sales 2003: 4210/ 6,854,000 = 0.06% 2002: 29,953/5128,800 = 0.58% 2001: 143,175/2954000 =4.85% ROA: 2003: 4210/3,995,978 = .11% 2002: 29953/3053860 = 0.98% 2001: 143,175/1,668,800 = 8.78% ROE: 2003: 4210/1,003,881 = 0.42 2002: 29953/999,671 = 2.99 2001: 143,175/969718 = 14.7 APPENDIX B ...read more.

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