Financial Analysis of Blue Bay Corporation and World Marine Corporation - Example

Financial Analysis This section will look to compare the financial performance of Blue Bay Corporation with World Marine Corporation so that the organization which is performing better can be identified and strategies based on it can be developed. This will help the users of the financial statement to understand the performance of each company and comparing between the two will provide an opportunity through which investors can take their business decisions. Liquidity Ratios This ratio look at ascertaining the short term liquidity position and helps to understand whether the organization is capable of meeting the short term liabilities through its short term assets. The comparison of the performance of Blue Bay Corporation and World Marine Corporation is shown in the graph below Figure 1: Liquidity Ratios The above chart shows that Blue Bay Corporation has a better short term liquidity position compared to World Marine Corporation showing that they will be able to meet their short term expenses easily but it is a concern for World Marine Corporation. Blue Bay Corporation due to the fact that they are able to pay their short term expenses will be able to raise the required finance for short term easily and will ensure that the creditors will be able to get their payments at the correct time. A look at the quick ratio shows that both the organization has huge inventories which are a worrying sign. It is true that business of this nature has high inventory but still the inventory holding is very high and increases the chances of the stock becoming obsolete. The ratio also shows that both the organization is incapable of paying off the short term debts after removing inventories and needs to work in that direction. Activity Ratios This ratios helps to understand the manner in which the business is able to use the different assets and helps to understand whether the business has more assets than required. This helps the business to improve their efficiency and provides an opportunity through which the use of assets will improve. The comparison of the ratios is as follows Figure 2: Activity Ratios The above graph shows that Blue Bay Corporation has been able to revolve its inventory more than World Marine Corporation showing that the chance of inventory becoming obsolete reduces. This has been shown by the inventory turnover in days which needs to be improved by World Marine Corporation so that the usage of inventory improves. The receivable ratio shows that Blue Bay Corporation is able to collect money quickly from its customers compared to World Marine Corporation which increases the chances of bad debts for World Marine Corporation. The fact that Blue Bay Corporation revolves its receivable quickly than World Marine Corporation has provided an opportunity where they also pay off the creditors quickly. This will help them to develop good brand image among the creditors and will provide an opportunity through which they will find easy suppliers, creditors and others for the short term. Due to the fact that the policies of Blue Bay Corporation are better implemented compared to World Marine Corporation it is able to have a good cash conversion cycle which will ensure better liquidity and will help to ensure that the overall business productivity improves. Leverage Ratio This ratio helps to understand the debt and equity component and helps to understand whether the business will be able to pay the interest. This ratio helps to understand the ability to understand whether the business will be able to raise finance for the future through borrowing or not. The comparison of the leverage ratio for Blue Bay Corporation and World Marine Corporation is as Figure 3: Leverage Ratio The debt ratio shows that Blue Bay Corporation has lower debt compared to World Marine Corporation which has ensured that the business has looked at equity financing and has been able to reduce the money raised through loan. This provides an opportunity through which the business can raise money through loan in the future. Blue Bay Corporation also needs to ensure that a balance is maintained between debt and equity so that they are able to save on taxes on the interest paid on borrowed loan. The debt to equity component reflects that Blue Bay Corporation has a lower debt component when based upon equity as compared to World Marine Corporation highlighting the opportunity through which they will be able to raise more and more finance for the future through borrowed money. Profitability Ratios This ratio will help to realize the manner in which the business has been able to generate profits from the use of different resources and the manner in which the different assets were used. The ratio shows the manner in which the business was able to provide adequate returns to the investors from the profits which was generated. The comparison of the ratios is as Figure 4: Profitability Ratios The comparison of the ratios shows that World Marine Corporation has been able to generate better profits compared to Blue Bay Corporation showing that the business has been able to use the different resources efficiently. This is an area of concern for Blue Bay Corporation and needs to improve the bottom line so that they are able to contribute more towards the stakeholders. On the other hand the return on assets shows that Blue Bay Corporation has used its assets in a better way compared to World Marine Corporation which has helped to ensure better profits in comparison to World Marine Corporation. The return on equity on the other hand shows that Blue Bay Corporation has a lower return on equity as compared to World Marine Corporation because of the fact that they have a higher equity component. The overall comparison shows that Blue Bay Corporation is better placed but needs to improve their profits slightly in comparison to World Marine Corporation so that better financials gets reflected. Market Ratios This ratio will help to realize the performance of the organization with regard to the market and will provide the dimensions through which the sentiments of the people towards the organization can be understood. The comparison of the ratios for Blue Bay Corporation and World Marine Corporation is as Figure 5: Market Ratios The comparison of the market ratios shows that Blue Bay Corporation is better placed in the market as compared to World Marine Corporation. This is because of the fact that the market to book value of shares for Blue Bay Corporation is very high. This has helped to ensure better investment from the market and is reflected through the P/E ratio which is very high. This shows that people have a positive sentiment towards Blue Bay Corporation and will thereby provide an opportunity through which finance for the future will be raised. Growth Ratios This ratio will help to provide a direction for the future and will show the manner in which the business will be able to enhance their performance for the future. This ratio based on different dimensions helps to understand the manner in which the future performance will be guided. The comparison of the ratios is as Figure 6: Growth Ratios The ratios shows that Blue Bay Corporation has a better opportunity to perform better in the future compared to World Marine Corporation. The present performance and different parameters which have been selected shows that both internal growth rate and sustainable growth rate is high for Blue Bay Corporation. This creates an opportunity through which Blue Bay Corporation will be able to work on new projects and ensure better development as is an aspect which World Marine Corporation needs to consider so that the future outlook improves and the business is able to perform in a better way. Read More