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Klaxon Limited.

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Introduction

SCHOOL OF TECHNOLOGY & MANAGEMENT AFFILIATED TO UNIVERSITY OF EAST LONDON (UEL) ASSIGNMENT MANAGEMENT OF FINANCE BY SHARAD AGARWAL STUDENT ID - 292RDRDEN03 COURSE - MBA (INTAKE- NOVEMBER'03) EXAMINER : PROF VIJAY SHENAI TABLE OF CONTENTS * INTRODUCTION Pg. 1 * PERFORMANCE COMPARISON Pg. 2 - 7 * RESTRUCTURING OF BALSNCE SHEET Pg. 7 * CONCLUSION Pg. 8 * APPENDIX Pg. 10 * REFERENCE Pg. 11 Klaxon Limited Introduction: On basis of the Profit and Loss statement and Balance sheet, a report is prepared to compare the performance of Klaxon Limited in year 20X3 vis a vis performance in year 20X1 and 20X2 and against the firms in the paper and packaging industry. As Klaxon Limited is planning to raise capital through an equity Issue in the near future some changes have been suggested, so that the equity issue is a successful one. PART A The following has been noticed in the account statements of Klaxon limited * The sales have increased by almost 50% from the year 20X1 and 25 % from 20X2 in the year 2003. As a result of which the other direct and indirect costs have also gone up. ...read more.

Middle

19.46 (837/43) 10 (1050/105) * As a rough approximation each item of Kalxon's inventory is sold out or restocked or turned over 17.1 times per year in the year 20X1, 19.48 times in the year 20X2 and 10 times in the year 20X3.The inventory turnover in the year 20X3 is much lower than the turnover in the preceding years. Formula 20X1 20X2 20X3 Industry average Stock Days Stock held X 365 Stock used 79 Days (41/190*365) 62 Days (43/253*365) 118 Days (105/325*365) 75 Days * This suggests that in 20X3 Kalxon is holding too much inventory which is unproductive or in other words an investment with low or zero rate of return. This low turnover ratio also affects the current ratio. It is nither in line with the number of days in 20X1 and 20X2, nor with the industry average. Formula 20X1 20X2 20X3 Industry average Debtor Days Trade Debtors X 365 Credit Sales 64 Days 51 Days 83 Days 35 Days * The credit extended to the debtors in 20X3 have increased by 95 % from year 20X1 and 106 % from year 20X2, which means Klaxon has extended more credit to its customers which should be reduced and the payment should be collected more promptly and in line with the collection as in years 20X1 and 20X2. ...read more.

Conclusion

16.13 (135/837) 15.24 (160/1050) Return on Capital Employed (%) Operating ProfitX10 Capital Employed 13.16 (97/737) 19.04 (135/709) 13.51 (160/1184) Liquidity ratio Current Current Assets Current Liabilities .99X 1.78 X 1.51 X Quick , Acid Liquid Assets Current Liabilities 0.76 X 1.39 X 1.14 X Activity Ratio Inventory turnover Sales Inventory 17.1 (701/41) 19.46 (837/43) 10 (1050/105) Net asset Turnover Sales Total Assets - C L 1.07 X 1.18 X 1.02 X Stock Days Stock held X 365 Stock used 79 Days (41/190*365) 62 Days (43/253*365) 118 Days (105/325*365) Debtor Days Trade Debtors X 365 Credit Sales 64.04 Days 50.59 Days 83.43 Days Creditor Days Trade CreditorsX365 Credit Purchases 83.93 Days (43/187*365) 64.14 Days (45/255*365) 51.65 Days (45/318*365) Solvency Ratios Debt /Equity Total Debt Total Equity 1.09 X (386/351) 0.73 X (300/409) 1.73 X (751/433) Interest Cover Operating Profit Interest 2.94 X (97/33) 4.5 X (135/30) 2.22 X (160/72) Share Holder Ratio Earnings per share Profit after Tax No of Shares 0.23 (46/200) 0.39 (78/200) 0.32 (63/200) Return on Equity Profit after Tax Share Capital and Reserves 0.13 (46/351) 0.19 (78/409) 0.15 (63/433) Price earnings ratio Share price EPS 15.17 (3.49/0.23) 8.95 (3.49/0.39) 12.56 (4.02/0.32) REFERENCE 1. Business Finance, Eddie McLaney, Sixth Edition, 2003 2. Financial Management, Eugene F Brigham, Michael C Ehrhardt, Tenth Edition, 2002 3. Mastering Finance, Financial Times, 1998. ...read more.

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