Financila reporting for Summer bodysuit Ltd (SBL) startup company Essay

Financila reporting for Summer bodysuit Ltd (SBL) startup company - Essay ExampleThis problem is so serious that the bank has put across the company to reduce its overdraft for the next six months, hence worsening its already ailing cash slow. As a member of Drake Management Consultants, who have been mandated to give nonice the company regarding financial issues, I have undertaken to write this report, citing the key problems and offering some recommendations regarding the problems that the company is undergoing. Analysis of the companys financial statements Return on capital employed (ROCE) The ROCE for Summer Bodysuit Ltd (SBL) has increased from 15.9% to 23.8%, which is a favorable trend. This shows that the business has efficiently invested its resources to create doughs. However, the management should be careful to ensure that this rate is keep at a higher rate than that of borrowing otherwise its benefit may not be realised (Baker and Wurgler 30). Year before last expiry year Profit before Tax 1,668 3,706 Capital Employed 10,474 15,600 ROCE = ((Profit before Tax) / (Capital Employed)) * 100. 15.9% 23.8% Return on Equity (ROE) It is remarkable that ROE has increased from 0.38 to 0.54, because this shows that the companys profitability is on an upward trend, hence an assurance to the shareholders that their capital is being used efficiently to make profits. This trend should be maintained by chronic to invest in profitable opportunities, though the management should be very careful not to engage in investment decisions that gutter slow beat this positive trend in the future. Net Income 1,248 2,926 Shareholders Equity 3,274 5,400 ROE = Net Income/Shareholders Equity 0.38 0.54 Gross Profit valuation reserve The companys gross profit margin has increased slightly, from 46% to 48%. Although, a slight increase in this ratio is a positive indication of financial health, the management should break away hard to ensure the cost of sales is reduced at a m ore increasing rate so that the companys growth can be speeded up. Incidentally, as the company work out on strategies that can increase the firms revenue, it should not be forgotten that reducing bare(a) cost of sales is also very essential. Furthermore, what is left after netting cost of sales from the revenue is used for paying for additional expenses as come up as for future savings (Barry 256). Year before last Last Year Revenue 14,006 22,410 COGS 7,496 11,618 0.46 0.48 Net Profit Margin The Net profit Margin has increased from 8.9% to 13%, which is financially very healthy if this trend continues in the future, the company is likely to grow in leaps and bounds. The management should be on the vigil for the costs that could be increasing at a greater rate than the revenues and control them because this could cause the growth in the net profit margin to lessen in the future (OConnor 758). Year before last Last year Net income 1,248 2,926 Revenue 14,006 22,410 Net profit marg in = (net income/ revenue)*100 8.9% 13% line Turnover Ratio The companys inventory turnover ratio has declined from 5.79 times to 3.85 times. This declined trend can cause alarm if it is as a get out of any goods selling slowly. However, if it is caused by a companys new strategy that has led to increased inventory, and which will lead to overall growth, then this should not be a cause of alarm. However, the management sh