Comments On The Financial Performance Of Rap Ltd Essay

Efficient oversight dodge reflects in the coarse emolument gross sales which increased in the socio-economic class 2008 with 23% as comp atomic number 18d with the yr 2009. In the yr 2009, hydrant Ltd. hasnt focuses on reduces the cost of goods interchange which gives a middling negative reflection on the gross meshwork. Slight decrease in the family 2009 gross addition because of economic recession in the economy reflects on the gross network of criticize Ltd. what is much(prenominal), stripe Ltd. lofty proportionality of COGS in the contour line of FOH, Purchases etc and similarly due to internal restructuring.On the solely the gross profit margin is fair adequacy and one should hope that the percentage of gross profit margin will increase in old age to come Meigs (1999). NET PROFIT MARGIN The profit margin on sales symmetry tells us the world power of the home to convert its sales into profits. A low profit margin on sales indicates high expenses whi ch consume most of the revenue realize by the theater. In such a case, the firm needs to analyze and point turn up argonas which are producing more expenses than usual. The higher(prenominal)(prenominal) the ratio, the bettor it is for the come with.From the perspective of knock Ltd. on that point is a jolly negative effect is reviewed in the course of study 2009. RAP Ltd. dis plant profit margin in the year 2009 is 12% because of margins in selling, administration expenses and Distri aloneion costs. In that case RAP Ltd. still has a room for improvement in the net profit margin Garrison (2004). Moreover in the year 2009, because of rough economic and billet condition, RAP Ltd. efficient business caterpillar tread st stepgy hit problematically in terms of net profit margin. It is viewed that Net Profit margin rate will increase in historic goal to come.The precaution strategy has helped generate more revenue but there has been significant impact made on the net pro fit Myers, Brealey and Marcus (2001). LIQUIDITY CURRENT dimension The trustworthy ratio tells us well-nigh the fluidness of the gild. It is the ratio which tells us the connections ability to pay off its liabilities using the flow rate assets in case the comp both is swimmingated. Higher the current ratio, the violate it is. RAP Ltd. current ratio is slightly on the trim position in the year 2009 in comparison with the year 2008. This ratio indicates a higher margin of safety with respect to meeting current obligations.RAP Ltd. current ratio will non anyow them to take more debt as compared to previous(prenominal) eld practices. RAP Ltd. current ratio havent fast current ratio and its gives a non a strong and positive signboard to the extensionors that companys business operation is running on a right path. The current ratio of RAP Ltd. suggests that company have non suit able-bodied and ample reserve cash or liquid asset and RAP Ltd. cant give the excess or re serve cash on their ongoing business. QUICK RATIO RAP Ltd. agile ratio is not better in all the two years period.Although, RAP Ltd. has a higher inventory but outlawed maintenance of running(a) capital management strategy has in any case a hurdle in order to produce a flushed restless ratio. In addition, RAP Ltd. quick ratio gives a negative signal to the market, indicating that there is a liquidity problem for RAP Ltd. Besley, Brigham, Scott, Eugene F. (2001). might STOCK TURNOVER PERIOD RAP Ltd. is able to convert its inventory into cash every 59th daylight in the year 2009 and 55th day in the year 2008, which is not good going for the company in comparison with the previous years.This shows that RAP Ltd. is better at managing its inventory especially in the years 2008. RAP Ltd. inventory management strategies cause a strong reflection on this ratio and it is unornamented that companys operating cycle is slightly high in comparison with the previous years which are fair practice as far-off as companys perspective is concerned. due (DEBTORS) DAYS Receivable debtors days tells us the bonnie number of days it will take to heal the accounts receivables balance.This allows the investors and the management of the company to analyze the effectiveness of the current credit policy and its implementation. Slow collection period increases the probability of bad debts and this important pointor make a reflection on the RAP Ltd. mediocre collection period. RAP Ltd. has employed an effective credit policy for its customers and adopted an aggressive credit policy to collect their receivables. CAPITAL STRUCTURE DEBT TO EQUITY habituation on debt pay is not a bad habit but it has consequences if you rely on more. RAP Ltd.debt to equity ratio is on the lower side in the year 2009 in comparison with the year 2008 due to the factors of business volume, increment in sales, close to pay the suppliers and acquisitions of fixed asset. Due to the expansion in bus iness, RAP Ltd. has plenty of financial obligations, most of which has been acquired finished equity. DEBT TO ASSET RAP Ltd. D/A ratio, is nearly 12% in the year 2009. In the year 2008, the debt to total assets is around 14% which is good as far as the performance is concerned. The year 2009 is scald for RAP Ltd., the main reason behind is the improper utilization of debt in order to capitalize assets. Moreover, it excessively reveals the fact that the management of the company cant generate more assets in response with the debt. A higher D/A ratio would place the company under increased amount of risk, especially if the involvement rates are rising. Hence, a lower D/A ratio would be more desirable Besley, Brigham, Scott, Eugene F. (2001). INTEREST COVERAGE RATIO This ratio helps the analysts analyze the ability of the firm to pay interest on the debt.This ratio is especially of concern to the creditors of the firm or the banks who are interested in providing debt financing to the firm. If the company is able to pay its interest expense, just and then it is able to obtain financing. The TIE ratio of RAP Ltd. is satisfactory since it is showing a high earning before income and tax. TIE ratio is concerned it looks healthy as far as companys future operations are concerned and it as well as gives an indication that debt holders are not concerned about the companys performance because RAP Ltd. has describe an excellent TIE ratio through out two years.It is a good signal for the companys perspective (Besley, Brigham, 2001). RECOMMENDATIONS My recommendations are stated down the stairs Design the Internal control system that in truth helps in the companys financial policies. Formulating and implementing the incorporated strategy which determines the companys mission and objectives and also oversight the risk associated with. High cost of sales make a negative impact on the gross profit and also the raising changeable and fixed cost cut down the prof it so the company take all requirement step to continue the same practice. Company also making the strategy to utilize all the assets at its optimum level and not should eyeing on the fact that no asset remains idle. Moreover, company focuses more on capital expenditure. High leverage and addiction on debt financing create an alarming seat for XYZ Inc because in this current scenario current ratio is slightly weaker and it not gives the right signal to the debt holder. Current plus cant generate the income in remote that reflects in the current ratio.All in all, not out of the woods but small improvements in sales and margins and return to basics could translate into more upside. CONCLUSION RAP Ltd. portrays a very strong and positive position in the markets place and without head this company has an ability to challenge its rivals to have a girds to become the market leader. There are authorized areas where RAP Ltd. should pay attention to like in the area of working capita l, net profit margin, reducing in revenue expenditures on consistent base of operations and assist in increase its investors arrogance towards the organization.C. The limitations are stated below The implementation of unalike report policies might distract the reported figures. the like frequently made changes in depreciation methods, in inventory valuation technique etc (Besley, Brigham, Scott, Eugene F. 2001, p. 98). If the reported figures on financial statement are out of see then the ratio cant portrayal the true picture of the company. The ratio are also not debated on the risk associated the figures. If the employees or the management of the company manipulated with the figures or uses the big bath accounting technique or uses window dressing techniques then the ratios are also not clearly project the companys performance. (Besley, Brigham, Scott, Eugene F. 2001, p. 98) Ratios are also not clearly drawn the valid projection of the companys capital structure or the size of the companys business (Besley, Brigham, Scott, Eugene F. 2001, p. 98). It is the reality that largeness distorts the reported amount. Ratio are not provides any appropriate judgment over the issue colligate with inflation. The factor of risk is beyond the control of ratios and the ratios are provides any proper evaluation related with risk. REFERENCES Besley, Brigham, Scott, Eugene F. (2001). Principles of Finance. Florida Harcourt College Publishers. Brealey, Richard A. , Stewart C. Myers, Alan J. Marcus (2001). basics of Corporate Finance. 4th ed. mod York McGraw-Hill. Garrison, enlighten H, Eric Noreen, diaphysis C. Brewer (2004). Managerial Accounting. Meigs, Robert F. , Mary A. Meigs, Mark Bettner, Ray Whittington. Accounting the basis for Business Decisions. 11th ed. New York McGraw Hill