Comments On The Financial Performance Of Rap Ltd Essay

Efficient management dodge reflects in the perfect(a) remune balancen sales which step-upd in the class 2008 with 23% as comp atomic number 18d with the division 2009. In the category 2009, cut Ltd. hasnt focuses on reduces the cost of goods sold which gives a passably negative blame on the piggy hit. Slight decrease in the year 2009 staring(a) profit because of economic recession in the economy reflects on the gross profit of water tap Ltd. Moreover, criticise Ltd. high dimension of COGS in the regularize of FOH, Purchases etc and in addition due to internal restructuring.On the whole the gross profit margin is moderately enough and one should hope that the percentage of gross profit margin will increase in years to get off Meigs (1999). NET PROFIT MARGIN The profit margin on sales ratio tells us the susceptibility of the firm to convert its sales into profits. A low profit margin on sales indicates high expenses which annihilate most of the taxation earned by the firm. In such a case, the firm needs to collapse and point out areas which are producing to a greater extent expenses than usual. The higher the ratio, the better it is for the familiarity.From the survey of criticize Ltd. there is a more or less negative moment is reviewed in the year 2009. spigot Ltd. take in profit margin in the year 2009 is 12% because of margins in selling, administration expenses and dispersal costs. In that case smash Ltd. still has a room for service in the profits profit margin Garrison (2004). Moreover in the year 2009, because of rough economic and championship condition, spigot Ltd. efficient business running strategy hit badly in terms of net profit margin. It is viewed that Net Profit margin rate will increase in years to come.The management strategy has helped generate more revenue but there has been significant impact made on the net profit Myers, Brealey and Marcus (2001). LIQUIDITY CURRENT RATIO The current ratio tells us slig htly the liquidity of the alliance. It is the ratio which tells us the attach tos ability to pay off its liabilities using the current summations in case the company is liquidated. Higher the current ratio, the better it is. knocking Ltd. current ratio is meagerly on the lower side in the year 2009 in coincidence with the year 2008. This ratio indicates a higher margin of safety with obedience to meeting current obligations.RAP Ltd. current ratio will non allow them to take more debt as compared to previous years practices. RAP Ltd. current ratio havent strong current ratio and its gives a non a strong and positively charged auspicate to the creditors that companys business operation is running on a reform path. The current ratio of RAP Ltd. suggests that company have non adapted and ample reserve cash in or liquid asset and RAP Ltd. cant utilize the excess or reserve cash on their ongoing business. QUICK RATIO RAP Ltd. quick ratio is non better in all the two years effect.Although, RAP Ltd. has a higher inventory but im decorous maintenance of works capital management strategy has also a hurdle in order to produce a healthy quick ratio. In addition, RAP Ltd. quick ratio gives a negative predict to the market, indicating that there is a liquidity problem for RAP Ltd. Besley, Brigham, Scott, Eugene F. (2001). EFFICIENCY STOCK TURNOVER geological period RAP Ltd. is suitable to convert its inventory into cash every 59th solar day in the year 2009 and 55th day in the year 2008, which is not good going for the company in comparison with the previous years.This shows that RAP Ltd. is better at managing its inventory peculiarly in the years 2008. RAP Ltd. inventory management strategies make a strong censure on this ratio and it is evident that companys operating cycle is slightly high in comparison with the previous years which are fair practice as far as companys perspective is concerned. RECEIVABLE (DEBTORS) DAYS Receivable debtors days tell s us the average repress of days it will take to recover the accounts receivables balance.This allows the investors and the management of the company to crush the potentness of the current credit policy and its implementation. Slow suck inion period increases the probability of bad debts and this important incidentor make a reflection on the RAP Ltd. average collection period. RAP Ltd. has employed an effective credit policy for its customers and adopted an aggressive credit policy to collect their receivables. CAPITAL STRUCTURE DEBT TO EQUITY Dependency on debt funding is not a bad habit but it has consequences if you rely on more. RAP Ltd.debt to equity ratio is on the lower side in the year 2009 in comparison with the year 2008 due to the factors of business volume, increment in sales, fulfilment to pay the suppliers and acquisitions of fixed asset. Due to the expansion in business, RAP Ltd. has plenty of financial obligations, most of which has been acquired through equity . DEBT TO ASSET RAP Ltd. D/A ratio, is around 12% in the year 2009. In the year 2008, the debt to total assets is around 14% which is good as far as the performance is concerned. The year 2009 is worst for RAP Ltd., the main reason rat is the improper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company cant generate more assets in response with the debt. A higher D/A ratio would place the company under increased amount of risk, especially if the interest place are rising. Hence, a lower D/A ratio would be more desirable Besley, Brigham, Scott, Eugene F. (2001). INTEREST COVERAGE RATIO This ratio helps the analysts analyze the ability of the firm to pay interest on the debt.This ratio is especially of concern to the creditors of the firm or the banks who are interested in providing debt financing to the firm. If the company is able to pay its interest expense, only because it is able to obtain financing. The dra w together ratio of RAP Ltd. is satisfactory since it is showing a high earning before income and tax. TIE ratio is concerned it looks healthy as far as companys future operations are concerned and it also gives an indication that debt holders are not concerned about the companys performance because RAP Ltd. has reported an excellent TIE ratio through out two years.It is a good signal for the companys perspective (Besley, Brigham, 2001). RECOMMENDATIONS My recommendations are stated below objective the Internal control system that really helps in the companys financial policies. Formulating and implementing the corporate strategy which determines the companys mission and objectives and also oversight the risk associated with. High cost of sales make a negative impact on the gross profit and also the altitude variable and fixed cost cut down the profit so the company take all necessary step to continue the same practice. Company also making the strategy to utilize all the asset s at its optimum level and not should eyeing on the fact that no asset remains idle. Moreover, company focuses more on capital expenditure. High leverage and dependency on debt financing create an alarming situation for XYZ Inc because in this current scenario current ratio is slightly weaker and it not gives the right signal to the debt holder. Current Asset cant generate the income in apart that reflects in the current ratio.All in all, not out of the timberland but small improvements in sales and margins and return to basics could metamorphose into more upside. CONCLUSION RAP Ltd. portrays a very strong and positive position in the markets place and without doubt this company has an ability to take exception its rivals to have a girds to become the market leader. There are received areas where RAP Ltd. should pay attention to like in the area of workings capital, net profit margin, reduction in revenue expenditures on reconciled basis and assist in increase its investors confidence towards the organization.C. The limitations are stated below The implementation of different accounting policies might remove the reported figures. Like frequently made changes in depreciation methods, in inventory valuation technique etc (Besley, Brigham, Scott, Eugene F. 2001, p. 98). If the reported figures on financial avouchment are out of date then the ratio cant portrait the true picture of the company. The ratio are also not debated on the risk associated the figures. If the employees or the management of the company manipulated with the figures or uses the declamatory bath accounting technique or uses window dressing techniques then the ratios are also not clearly projected the companys performance. (Besley, Brigham, Scott, Eugene F. 2001, p. 98) Ratios are also not clearly drawn the valid bulge of the companys capital structure or the size of the companys business (Besley, Brigham, Scott, Eugene F. 2001, p. 98). It is the reality that inflation distorts the reported amount. Ratio are not provides any appropriate judgment over the issue relate with inflation. The factor of risk is beyond the control of ratios and the ratios are provides any proper evaluation related with risk. REFERENCES Besley, Brigham, Scott, Eugene F. (2001). Principles of Finance. Florida Harcourt College Publishers. Brealey, Richard A. , Stewart C. Myers, Alan J. Marcus (2001). Fundamentals of Corporate Finance. 4th ed. New York McGraw-Hill. Garrison, tool H, Eric Noreen, Peter C. Brewer (2004). Managerial write up. Meigs, Robert F. , Mary A. Meigs, Mark Bettner, Ray Whittington. Accounting the basis for Business Decisions. 11th ed. New York McGraw Hill