Part AProject Analysis Exercise: Super Furnishing CompanyTrend AnalysisSales have grown by more than one and a half times from 2004 to 2010 and are up by 160.81%Gross profits have grown but very little in comparison to sales and stand at 112%Reason: Increase in cost of raw materialsIncrease in production cost i. e. rise in direct expenses which has grown by 84%Net profits have decreased and is less that half and stands at 40%Reason: Increase in interest income which has grown by 144%Increase in operating expenses which has increased by 171.43% in 2010 over 2004The increase in operating expenses and interest expense is a serious consideration which needs to be dealt seriously. Balance SheetInventory has grown over the years by 681.67% which shows poor management of inventories and resulting in cash to idle.
This has resulted in poor stock turnover rates and poor management. This could have been justified with growth in sales but it stands at 160.81% growth rate for the same period highlighting inefficiency. Accounts receivable has grown by 135.29% where as payable has grown by 252% over the same period. The growth is justified by the increase in sales but debt collection seems to be a problem increasing the risk associated with bad debts. Long term liability has also grown significantly and has grown by 201% highlighting lots of investment from outside sources. RatiosProfitability RatiosThe industry gross margin stands at 30%Super Furnishing Company has a poor average in comparison to the industry average for 2005 to 2010 and in 2004 the company had a slightly better averageThis is further been substantiated by a decrease in net profits which has seen a dip to 40% in comparison to 2004 highlighting rising operating costReturn on asset has decreased significantly from 14.96% in 2004 to 2.43% in 2010 highlighting inefficiency in using assets and having more assets than warranted. Liquidity RatiosThe industry average for current ratio is 2:1 and for quick ratio is 1:1Super Furnishing Company has been able to maintain consistency in current assets ratio where as quick ratio has shown a significant dip which is attributed to large inventories which has grown by 681.67%The ratios are a concern for Super Furnishing Company as it is far below the industry standardsThis falls in line with the account receivable and accounts payable statement highlighted in the trend analysis which has shown poor performanceEfficiency RatiosThe industry average for accounts receivable is 30 days and inventory turnover is 60 daysThe account receivable in days has grown significantly for Super Furnishing Company from 2005 to 2010 and is well beyond the industry standard.
It was sound in 2004 hen it was meeting the standards. This highlights poor efficiency in collecting money from debtors showing poor debt management and increasing the likelihood of bad debtsThe inventory turnover in days has grown significantly for Super Furnishing Company from 2005 to 2010 and is well beyond the industry standard.
It was sound in 2004 hen it was meeting the standards. This is supported by the growth in inventory by 681.67% as shown in the trend analysisProblemsImprove the inventory management policy throughJust in time technologyBetter managementReviewing of stock