The paper 'Thunder Electronics Company ' is a wonderful example of a Business Assignment. There are numerous areas where the company has continued to portray a significant level of performance in relation to its underlying industry averages. The company has ensured to keep its financial ratios way above the required industry average. Some of these strengths are perceived in the firm’ s sales growth level that remains at 25% for both 2011 and 2012 financial periods. The industry averages at these two periods stand at 10% and 12% respectively. The favorable sales growth ratio is attributed to the company’ s capacity to promote its current product and service base at fair and affordable prices hence promoting intensive purchases from existing and potential customers.
The positive growth is also attributed to improved selling practices like intensive marketing campaigns as can be noted by the increase in the level of selling and administrative expenses from $239,900 to $304,700 in the two periods. Consequently, the firm’ s inventory turnover increases from 5.22 to 6.74 in the three year period between 2010 and 2012 respectively. The improvement is fairly positioned above the industry averages indicating that the firm has an effective purchasing function as well as devises effective ways of translating current stocks into sales revenues.
In fact, this is portrayed by the increased sales from $1.2M to $1.875M in the period between 2010 and 2012 respectively. Weaknesses First, the company’ s profit margin decreases in the three-year period from 7.35% to 6.38% in 2010 and 2012 respectively. The decrease in the ratios falls below the recommended industry averages of 7.71% and 7.96% respectively. The drop in the ratio indicates that Thunder Electronics Company has a poor capacity to translate sales revenues into significant earnings per each dollar of sales.
In fact, this decrease can be fairly expounded by the rather significant increase in the amounts incurred to sell goods from a low of about $800,000 to a higher of $1.31M in the period between 2010 and 2012 respectively. The increase in the cost of goods sold has increased in an in-proportionate manner as compared to the increase in sales revenues within the same period. Secondly, the company’ s return on assets decreases tremendously within the three year period from a high of 8.02% to 5.70% in comparison to 7.94% and 8.95% recommended industry averages.
The decrease ascertains that the management team of the firm has lost its capacity to optimally use the current asset base to post sufficient sales revenues. In fact, the company’ s total asset base increases within the three-financial period from $1.1M to $2.1M but the increase is not reflected in the level of revenues earned within that period. Thus, poor performance is attributed to the management team being inefficient in its sales duties. Third, the company’ s return on equity, just like ROA, drops from 15.9% to 13.98% in the three year period as opposed to an improved industry average.
The decrease in the ratio in comparison to recommended industry averages is attributed to the inability to utilize the existing stockholders’ equity base to post sufficient sales revenues. As can be seen in the balance sheet (Exhibit 2), total stockholders’ equity has increased substantially from $554,600 to $856,100 in 2010 and 2012 respectively, and with greater margins in comparison to sales amounts within that period.