BNL Stores Case SolutionÂ
Firstly, by analyzing the profitability ratios, it can be seen that the net profit margin of the company has significantly declined over the period of time and by the year 2010 it became negative. Along with this, the company has been facing difficulty in its operations. The operating costs are higher than the revenue which the company is generating and this can be seen through the income statement. The selling, general and administrative expenses of the company have increased as well.
The ratio return on equity indicates the efficiency of the company in using the equity of the shareholders in generating the return which is profit. The company uses the shareholdersâ€™ money to do business and as a result, it is able to earn profit. The return on equity indicates that the company has become inefficient in the operations of the business and in the year 2010 the company hadahigh negative ratio, which indicated the failure of the company in its operations.
The ratio of return on assets shows that the company has not been using its assets for generating profit. The companyâ€™s profitability is in a declining state and therefore,the companyâ€™s ratio has become negative, which shows that the company is making losses even by using its assets.
By considering the current ration, it could be seen that the company is in a a break even position. Moreover, the company has enough current assets which it can use to pay off its current liabilities. The company has about $1.24 of asset to pay off $1 of its liabilities,however it should also be noted that most of the current liabilities of the company are stuck in the account receivable and the company might face difficulty in recovering this amount. This is also an alarming situation which indicates that the company has become financially weak and might not be able to pay off its current liabilities.
Furthermore, the quick ratio is same as the liquidity ratio which shows the ability of the company to pay off its current liabilities with more quick assets, which are more readily convertible to cash. Over here,the company has a declining ratio and at the year 2008, the company was in a position where it was unable to pay to its current liability holders. Thus, as per the quick ratio, the liquidity position of the company is worse.
The company has been facing difficulty in the collection of receivables from its customers. This can be seen through the daysâ€™ receivables outstanding ratio,however with the ratio of 126 days in year 2007, the company has improved its ability to collect the receivables. This has resulted in slightly positive effects on the liquidity and the cash level of the company.
The inventoryturnover ratio indicates the companyâ€™s ability in maintaining its inventory is favorable. The company has maintained this ratio in around 3, which indicates that the company doesnâ€™t hold inventory in excess. It also indicates that the company sells its inventory efficiently. Another aspect is that the company has been selling at credit which might be the reason of this favorable inventory turnover ratio.
The asset turnover ratio indicates that the company is making $1.63 from every use of its $1 asset, therefore this indicates the companyâ€™s use of asset for the revenue generation. The ratio is favorable here for the company,however,it should be born in mind that the net assetsâ€™ value contains high receivables.
From the ratio of debt over equity, it can be analyzed that the company has increased the debt funding in its capital structure. The debt to equity ratio has reached to 8.51 in the year 2010, which is highly unfavorable for the company. It can be said that the company is entirely relying on debt. The high debt also involves higher interest payment, which can also be seen through the increasing pattern of interest expense from the income statement of the company…………….
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