Managing Financial Principles and Techniques: Sherieda Brissett
Managing Financial Principles and Techniques: Sherieda Brissett
Managing Financial Principles and Techniques: Sherieda Brissett
Sherieda Brissett
AC 6.1-6.3
490
current liabilities
current ratio
300
1.633333
650
current liabilities
current ratio
350
1.857143
490
inventory 230
quick assets
260
current liabilities
quick ratio
300
0.866667
650
inventory 330
quick assets
320
current liabilities
quick ratio
350
0.914286
2990
trade receivables
170
17.58824
3500
AC 6.1-6.3
trade receivables
220
15.90909
230
7.926087
2135
average inventory
330
6.469697
91
2990
0.030435
129
3500
0.036857
2990
total assets
2065
assets turnover
1.447942
3500
total assets
2300
1.521739
650000
995000
150000
AC 6.1-6.3
1795000
193000
0.25
825000
1075000
150000
2050000
195000
0.25
650000
1795000
825000
2050000
0.402439
AC 6.1-6.3
6.2 Applying financial ratios for improving the quality of financial information
The current ratio of Dynamic Models Plc was 1.63 and 1.85 in 2011 and 2010 respectively. The industry
average current ratio is 2.2. The ideal current ratio is 2 (Prasanna Chandra, 2011). Dynamic Models Plc
needs to improve this ratio immediately to catch up with the industry average.
The quick ratio of Dynamic Models Plc was 0.87 and 0.91 in 2011 and 2010 respectively. The industry
average quick ratio is 1.1. Dynamic Models quick ratio is less than the industry average which means that
it enjoys less short term liquidity than many of its competitors.
The trade receivables turnover of Dynamic Models Plc was 17.58 and 15.90 in 2011 and 2010
respectively. The industry average trade receivables turnover ratio is 10 days. The higher is the trade
receivables turnover ratio the more inefficient is the credit collection process of the organization.
The inventory turnover ratio of Dynamic Models Plc was 7.92 and 6.46 in 2011 and 2010 respectively.
The industry average inventory turnover ratio is 7 days. The higher the inventory turnover ratio, the more
efficient is inventory management (Prasanna Chandra, 2011).
The net profit margin of Dynamic Models Plc was 3.04 per cent and 3.68 per cent in 2011 and 2010
respectively. The industry average net profit margin is 25 %. Dynamic Models Plcs is much less than the
industry average; this raises serious doubts about its viability.
The assets turnover ratio of Dynamic models Plc was 1.45 and 1.52 in 2011 and 2010 respectively. The
higher is the assets turnover ratio, the better is the utilization of assets. The industry average asset
turnover ratio at 2 is higher than that of Dynamic Models Plc.
The return on Capital Employed (ROCE) of Dynamic Models Plc was 8.06 % and 7.13 % in 2011 and
2010 respectively. The industry average ROCE is a whopping 50 %.
The Gearing Ratio of Dynamic Models Plc was 36.21 % and 40.24 % in 2011 and 2010 respectively. The
gearing ratio measures the degree of debt in the capital structure of the company. The industry average
gearing ratio is 20 %. So Dynamic Models is much more leveraged than most of its competitors; it uses
much more debt in its capital structure.
6.3 Recommendations on the strategic portfolio of the company based on its financial information
On comparing the financial ratios of Dynamic Models Plc with the industry average it becomes apparent
AC 6.1-6.3
that the company is in dire straits. If the company does not control its costs, increase its revenues and
improve its operating ratios in the short term then it may find it really hard to survive in future.
The company should reorient itself into a lean and fast moving organization that considers efficiency in
everything that it does. A global market for Dynamic Models products should be urgently developed so
as to give a thrust to the revenues of the company.
Dynamic Models needs to leverage its core competency in development of new designs more effectively.
References:
Prasanna Chandra, 2011, Investment Analysis and Portfolio Management, McGraw Hill
M.Y Khan, P.K.Jain, 2012, Cost Accounting, Prentice Hall
Perman Stephen H, 2001, Financial Statement Analysis and Security Valuation, McGraw-Hill