NoCarb Limited Ratio Analysis will cover 4 ratio groups: Liquidity, Success, Activity and Financial structure ratios, in order to have a much better understanding of business monetary position.
Measure the organization ability to satisfy its requirements for money to fulfill its responsibilities based in its current possessions. Money is really essential to keep business’s operations running. A failure to do that could lead the business to major problems, even a risk of bankruptcy. Nocarb existing ratio has improved in 0.
44 (1.48– 1.04) from previous year (2013 ), this is essentially due to the boost of stock levels and the conversion of receivables to cash. Quick ratio has reduction just in 0.02 (0.37– 0.35); not a significant variation. Quick ratio does not think about “Stock”, which in this case is not a great concept to omit it, due to the fact that we do not know how much scuba divers are Nocarb’s items. We just particular about stock being comprised of soft beverages. Profitability ratios
To determine profitability performance, we are going to analyse earnings margin and ROA ratios Alternative Earnings margin shows the portion of profit we receive from each dollar of sales.
When it comes to Nocarb has increased in 0.96% (16.24– 15.28) with respect to 2013. Soda market profitability depends more from the volume of sales rather than the high revenue earn from each unit. This industry is totally various from, for example High Tech industry, where volume of sales is little but with a high rentability per unit or service. There is a significant decrease of 1.22% (4.61-3.22) in the ROA ratio (also known as ROI). This worth suggests that Nocarb is losing performance at the moment to generate profit. We need to analyse activities ratios to have a much better image of Nocarb financial position. Activity (turnover) ratios.
From Note 2 we can see that Inventory level s have continuously increased given that 2012. It is not a surprise that “days in stock” has actually increased from 285 days to 760 days. This indicates that Nocarb have severe issues with the associated expense of keeping high level of stock like insurance coverages, obsolescence, handing and storage facility renting expense. This is also shown in the drop of sales from 59860 in 2013 to 43014 for this year. Nocarb sales on credit. Therefore is important to analyse “days in debtor” indicator, which indicate how long it takes for Nocarb’s customers to pay their debts. We can see that it is taking longer for customers to pay their bills from 285 days in 2013 to 760 days this year. If this becomes a tendency Nocarb can be in risk of running out of cash, necessary for daily operations. This also indicate that Nocarb it is over financing its customers.
After analysing Nocarb’s liquidity and activity ratios, which indicates a poor performance, we need to measure the borrowing level of Nocarb. “Debt to Equity” will help us to see how risky this company is. Debt to Equity ratio has significantly decreased from 294.53% in 2013 to 178% this year but it is still a high level. A ratio of 178% indicates that Nocarb assets are financed mostly with debt, making Nocarb more vulnerable to any fluctuation of interest rates.
Soft drink industry is a mass production industry. We assumed Nocarb does not have a unique product as most of its counterparts. This industry relays in high levels of sales, maximum inventory turnover and minimal levels of inventory to reduce costs. Profit margin ratio is not a good indicator for Nocarb due to the low profit margin per unit; usual for mass production industries. Nocarb has serious problems with high levels of inventory and its associated additional costs. This situation is a result of the decline of sales and the increase of inventory, more probably financed by debt as “debt to equity” ratio indicate. Nocarb need to redesign its Sales and Marketing strategies. Review its supply chain and inventory strategies. Review its Credit Policies and promote Cash sales. Also needs to be very care full with its borrowing/debt level.