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Swot Analysis - Gulahmed

Essay by   •  December 1, 2015  •  Case Study  •  1,889 Words (8 Pages)  •  1,412 Views

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Asset Management ratios;

Cash Conversion Cycle = DSI+DSO-DPO

2015

2014

2013

2012

2011

Year

97.86

96.89

103.13

108.32

162.78

CCC

143.89

149.42

164.73

152.40

127.86

Industry Avg.

The cash conversion cycle has been improved for the firm over the course of 5 years, which means the time period between payment to creditors and collection of sales has decreased. This will help the firm overcome cash flow problems. The number of day's sales in receivable has improved from 29 days in 2012 to approximately 18 days in 2015. The days payable outstanding have increased from 45 days in 2012 to approximately 69 days in 2015, which means the firm is holding cash and delaying payments subject to creditors. This may make cash available for the firm, but also may deteriorate relations with credits. Since there is the firm is holding back cash from payments, the figure for cash conversion cycle continues to drop over the 5 years. As compared to the industry averages, Gul ahmed enjoys a downward trend in this cycle and may have funds available to invest in new capital, spending on infrastructure and equipment.

 [pic 1]

Fixed Asset Turnover = Sales/ Total Fixed Assets

2015

2014

2013

2012

2011

Year

3.422

3.939

4.156

3.599

3.211

FATO

2.59

3.12

3.28

3.43

4.61

Industry Avg.

Total Asset Turnover = Sales/ Total Assets

2015

2014

2013

2012

2011

Year

1.337

1.360

1.425

1.415

1.247

TATO

1.02

1.16

1.17

1.27

1.63

Industry Avg.

The asset turnover observes a bell curve over the course of the 5 years for Gul ahmed, indicating its effectivity in using its overall assets to generate sales. The total asset ratio and fixed asset ratio both decline from 1.415 in 2012 to 1.337 in 2015 and from 3.599 in 2012 to 3.422 in 2015 respectively, showing that although the sales figure has increased over the years (Rs.25b in 2012 to Rs.33b in 2015), investments in Fixed assets, including plant and machinery, intangible assets and long term investments have also increased. Property, plant and equipment amounted to Rs.9.04b at the end of 2015 as compared to Rs.6.8b at the end of 2012. Long term loans also increased from Rs.2900 in 2012 to Rs.12859 in 2015. This increase in investments in fixed assets depicts an attempt of Gul ahmed at modernizing and expanding its business. State of the art machinery had been inducted to improve the efficiency of production.  

With an aggregate balance or Rs. 15.73 billion at the end of FY12, the assets recorded an increasing trend mainly on account of increase in stock and trade and loans and advances.

As compared to the industry averages, the asset turnover figures for Gul Ahmed lie fairly above its competitors.

  [pic 2]

[pic 3]


Debt- Management ratios;

Debt to total asset ratio = Total Debt/ Total Assets

2015

2014

2013

2012

2011

Year

0.713

0.726

1.132

1.232

0.769

DTA

0.45

0.52

0.51

0.47

0.45

Industry Avg.

Long term Debt Ratio = LT Debt/Shareholder's equity

2015

2014

2013

2012

2011

Year

0.391

0.392

0.461

0.535

0.530

LTD

0.29

0.31

0.23

0.24

0.21

Industry Avg.

The total debt to equity rose and reached its peak in 2012 (1.232), then declined sharply in the subsequent years. This raise was due to the increased debt the firm faced during FY12. This was because of the increase in cotton prices, high inflation, energy shortages and the law and order situation prevalent in the country in FY12, resulting in an increase in borrowing costs. Discount rate had increased from 12.5% in 2010 to 13.5% in 2011, resultantly, the interest rate increased. The interest expense for the firm increased from Rs. 1.09 m in 2011 to Rs. 1.4m in 2012. A 25% increase. A subsequent 10% decrease in finance cost in the FY13, allowed for the profit before tax for the period to jump to Rs. 841 m versus loss before tax of Rs. 1.4 m reported in FY12. The downward trend of the debt to total asset ratio indicate that the firm is using internally generated funds to finance the company rather though external funds.  
The Long term debt ratio continues to decline from 2013-2015 due to the increase in share capital of the firm. (Rs.
1269571 in 2012 to Rs. 2,285,228 in 2015).

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