Assessment of Mechani-Comp Limited - Case Study Example

Assessment of Mechani-Comp limited Name Course Tutor Date This paper will evaluate the aspects of performance of Mechani-Comp; this paper will use the simulation and analysis technique in obtaining the necessary information from the company’s reports and financial statement. The information that were obtained from the reports and financial statements are presented below, Return on capital employed (R.O.C.E) The simulation analysis on the return on working capital employed (ROCE) is an analysis that is often used to indicate the annual average return on investment that an investor will generate on investing on Mechani-comp, and also, how efficiently Mechani-comp is utilising the capital invested into the company in all its areas. The rate of return on capital invested is 92%; this means that, for every £1 that is invested in Mechani-Comp, the annual return for the investor would be £92p. An investor who would want to invest in this company would want to receive a much higher ratio; this shows that the investor would be getting negative returns on their investment into the company. This results show that the company is utilising the amount of capital invested into the firm in areas that are giving a close to 100% return on investment; the company needs to put more efforts in the business and greatly diversify in the in all areas of the business that are bound to increase the rate of return; for the company to at least break- even. The result of an elevated rate of return on investment is that the company will achieve a positive outlook on the future investors of the company: as this suggests that the company will offer a greater amount of profit and return on their investment on the capital invested in the company (Bhattacharyya 2001). Mechani-Comp return on investment indicates that the company is not doing as badly as thought, but this also shows that a company is posting negative returns on the invested. If the company improves this to a positive outlook, the company will attract more investment, and the capital invested will enable the Mechani-Comp to be able to achieve its objectives and goals (Cheverton 2005). Current Ratio The current ratio for Mechani-Comp is 3.29 times; this is an indication of how liquid the company is, and it also indicates the ability of the Mechani-Comp to be able to pay its investors on time. The ratio of 3.29:1 is high and extremely attractive, and this will increase the chance of Mechani-comp to attract investors. This ratio represents a safe cushion to the Mechani-Comp creditors, and give an accurate statement and position of the strength of the working capital invested within Mechani-Comp, the result of indicating a strong working capital ratio, the company is at a position to attract more funds into the business, the investors and other financial companies that are much more likely to lend to the company more money. This makes the company to be in a better place to achieve its objective and compete with its competitors (Cheverton 2005). Gearing This ratio indicates how Mechani-Comp can capitalise on its investments; the Mechani-Comp’s gearing of 2% indicate a particularly low figure, and this low figure indicates positive results for the company (Bhattacharyya 2001). The very low gearing of the Mechani-Comp indicates that the company issues a particularly high quality share equity capital to its potential investors. This ratio is extremely essential for the company and its potential investors, gearing affects the potential of the company to be able to pay it potential investors and owners of the company dividends, and it affects its dividend policy. The low gearing of the Mechani-comp shows that the company has the capability and the ability to maintain and sustain a constant dividend policy during times when the company is experiencing a decline in profits, and also in trading periods that are challenging and demanding. For Mechani-Comp, the low level of gearing shows that the company has a low level of financial risk; this due to the low amplified level of vitality that the profit level of the company has. The low gearing level will provide the Mechani-Comp investor the confidence to provide the company with more capital to fund its objectives and goals (Bhattacharyya 2001). Assets turnover This measure the ability of the company to use its assets to generate sales, an asset ratio of 8.92 represents a favourable outlook for the company, this shows that the company is utilizing its assets effectively in trying to achieving its marketing and sales objective (Bhattacharyya 2001). This is highly beneficial for the company and also indicates that the company has a superior advantage over its competitors. To be able to achieve an 8.92 time’s asset turnover ratio shows that the company has a completive and flourishing pricing strategy. This has indicated that Mechani-Comp has an efficient operating operations environment; that enables the company to use its assets effectively to achieve its sales and profit objectives (Bhattacharyya 2001). The significant asset ratio shown in the reports shows that the ability of the company to meet its financial obligations; at times when the company is facing immediate financial shortfalls and the creditor are desperately asking for their money back (Bruce Traill 1997). Operations The product design of a product encompasses the dimensions of how a product look, its shape, the offerings and other aspects that are tailored in the product to ensure that the product meets and contributes to the value and success of the company (Bruce Traill 1997). The efficiency and effectiveness of the product design of Mechani-comp is 93% this represents a particularly high quality of the product. The efficiency and quality of the company’s product has ensured that the company’s product maintain and ensures that it has a competitive edge in the market place over its customers, most of the customers are much more likely to be impressed with such a high showing of the company s product quality. The product quality indicates the efficiency of the company’s operation standards, the standards of operations of the company’s product are truly high, and this is occasioned by the high quality of the products. The feature and the style of the product are both tied at 79% this is a particularly high rank that the company’s products gave received, this high ranking has positioned the product to be in a much better position in the market place. The high ranking of the company product features and styles are an indication of the company’s efforts in enhancing the efficiency and effectiveness of the end-product. This shows that the company has put in so many efforts in tailoring into the product communications, pictures, design, and other styles and features that are meant to entice it intended customers (Bruce Traill 1997). The high ranking that has been shown in the performance of the end-product in the market place is an indication of the efficiency of the Mechani-Comp. The efficiency of these operations has a direct correlation with the quality of the product; the efforts that are put by the company in tailoring its products in order to meet and beat the customers’ expectations are shown by the feedback that the company is receiving from the research that it has carried out. The performance of the product is 65% this is a high performance, but also shows that there is much more improvement that the company can do to shore up the performance. The high performance of the ranking of the product in style, design and features does not directly translate to the overall performance of the product. The performance of the product is an indication of the company’s showing against the customers’ satisfaction, and the competitors that exist in the market place (Bruce Traill 1997). The performance of the product is directly hinged to the availability of substitutes, competition, the company’s reputation, the marketing efforts and other factors. The performance shows that the company needs to do more on the marketing and selling efforts, and also distinguish its products to offer more value to customers’. The value that the product will offer to customers will enable the company to improve customers’ satisfactions. Customers’ satisfaction is also another factor that affects the performance of the product. The factors that affect customers’ satisfaction are the cost of the product, weight of the product, the product reliability and the impact of the product to the environment. The market is highly competitive; hence, anything cannot be left to chance; the company needs to consider what the customers’ wants and needs, this will enable them to meet customers’ satisfaction needs and requirements. The smallest change in the product design, style, and features will go a long way in affecting the company’s product performance (Cheverton 2005). The company’s suppliers are some of the principal factors that will affect the operations of the company. The company has only one supplier for its resources and components. The supplier is called source-line suppliers. The average cost of the components is £6.50, and the term of the credit purchases for the company is 30 days. Having a single supplier for its components opens the company to major risks; the company is exposed to a lot of risks of failure of the Source-Line to supply. The company will not be able to meet its objectives and production requirement should its major supplier ever fail to supply. By having a single supplier the company, the question of whether the company is getting the best value for its components can be raised; whether the company’s raw materials are being priced way expensively or cheaply, are something that needs to be looked. The company should increase the number to of suppliers in order for the company to reduce its exposure to the supply risk (Bhattacharyya 2001). The production capacity of this company is 47 units per month, at a quality control time of 2 minutes; this means that the quality control of the company operations is particularly efficient this is largely because the company is not constrained in its resources requirements, also because the company produces at a maximum an average of 2 products per day (Cheverton 2005). The quality control of 2 minutes means that the company does not take long in ensuring the products being processed meet the customers’ specifications. This ensures that there are no variations of what the company is producing and the customers’ specifications. The quality control makes sure that the company’s product meets the internal quality standards that the company has set out for itself. The products that are on the company’s stock if zero, indicating that much of what the company produces is sold almost immediately. This means that the company has a ready market for its finished goods; the units that are contracted out are 14. This represents the number of units that the company is in the process of getting them out to the customers. Sales and marketing The target market for Mechani-Comp is other companies; this represents few but buyers who buy goods in large quantities. Getting new customers from the few but high sophisticated customers is truly hard, but this offers a fabulous opportunity for the company to offer above board products that will satisfy customers (Bruce Traill 1997). Most of these customers are loyal, and they do not shift form one buyer to the next, the cost of switching customers is particularly high. The cost of producing the product id £398 while the price of the product is £700; this offers an enormous profit margin that the company make from its customers. The marketing strategy for the company is selling extremely high quality product, which offers superior features and offer proper value to customers. The company attracts clients through business networks and the premium website (Cheverton 2005). Out of the 15 customer marketing research that Mechani-Comp has initiated 3 has been completed, and the competition marketing research initiatives that have been initiated 1 out of a possible 14 have been completed. Only 1 out of 14 marketing research has been completed. The company has 2 existing sales and distribution channels; the distributors distribute about 40 units of Mechani-comp products at an average price of £610 per unit. The profit margin that these distributors receive from distribution of the product is about £90 per product. The sales and distribution channels that the company employs offers a fabulous opportunity for the company to meet and interact with its clients. The company should form its own distribution network that would enable the company reduce the cost of the product in the market. The reduction of the cost of the product will enable the company become much more competitive in the market; the company will be offering much more value to its customers for less (Bruce Traill 1997). Financial position The Mechani-comp made an overall profit of £38, 085 for the period ending 2015, the end of the year cash flows were £31,845. The profit shows that although, the company had months where it made significant losses, the profits that it made in other months were significant enough to swallow those losses. The cash flows of £31,845 represent the movement of cash in and out of business; this is a positive outlook about the liquidity of the company. This shows that the company is not facing any immediate cash flow problems; it also shows that the high quality of the financial statements produced by the company (Cheverton 2005). This shows how money was effectively used in the past and can be used to determine the future outlook of the company’s cash-flows. The company balance balances, the total liability, is equal to the total assets of the company. This shows a positive outlook for the company. The balancing of the balance sheet is representing a summary of the strong financial position that the company has; it also shows the quality of the financial books that the company maintains (Bruce Traill 1997). It provides a clear picture of the company’s financial position. The company’s long term liabilities are significantly low; the current account ratio is 3.29 times, and this represents a positive outlook of the company’s assets over liabilities. In the case of insolvency, the company’s assets will be able to meet its liability requirements. This shows a positive state of the nature of the business operations. The company has no external investors; most of the company principal investors are its founders. The loan that is lent to the business for the smooth operations of the business comes from it the owners’ family. The loan is about £3,000; the total money owed to long term creditors is about £784. The credit control statement of the company overview indicates that the company has a balance of £20,050 from this total the urgent money that the company should pay constitute a figure of £4,900; the company has not been embroiled in any legal tussles with any client; hence, the legal fee and the threat to the company is nil. The trend of the total income that the company receives has been mixed, with high and lows show; the total cost of the business are derailing or reducing the income that the company generates. Organisation The company is managed by two staff members with the business working hours being a total 0f 70 hours. Elizabeth and peter are the only two staff members that Mechani-Comp has Elizabeth takes up a large chunk of the company total wages; she is paid £15,600 while peter earns £7,200. The company’s space is about 750 sq. feet; the month cost associated with the company’s space is about £ 938. The general mood of the company’s staff is happiness with the overall office equipment being din good condition. The company is a small one and has a small number of employees; this is indicated by the fact it does not have any health and safety policy in place. The furniture that the business has in carrying out its objectives is limited; the company should invest more on the furniture so that it can meet its needs effectively. The transport policy that the company has been described to be awful (Cheverton 2005). Conclusion Mechani-Comp is a small company, which is only served by two employees. The company has an average of 47 products in a year, making it produce an average of 2 units per month. The company is most of the times experiencing cash flow problems making it unable to pay for its obligations on time. The company should look for ways in which it is going to reduce its operation cost, this will enable the company to boost its operating cash flows and; hence, its profits. The lack of completion of the various researches that the company has initiated is worrying; the company will not be able to compete effectively in the market without appropriate information that it urgently needs and requires. References Bhattacharyya, D 2001, Management accounting, Pearson, New Delhi. Bruce Traill, KGG 1997, Products and Process Innovation in the Food Industry, Springer, Washington DC. Cheverton, P 2005, Key Marketing Skills: Strategies, Tools and Techniques for Marketing Success, Kogan Page Publishers, New York. Read More