Gemini Electronics Case Solution

Gemini Electronics Case Solution 

Current position

Currently there is recession and it is expected that company will also get affected as evident from last year figures. The company has realized its need to run heavy advertisement campaigns to make public aware of the company and its products this might cause increase in sales.

Moreover the company has expected some future uncertainties and has taken relative measure steps for this. It is feared that the competitors might goes into price fight to capture the higher market share and for this Gemini has been in policy of maintaining higher liquidity and cash balance to survive successfully in the expected situation.

Liquidity of the company

Current ratio of the company has been on an increasing trend and is above 2. The company has been maintaining its current ratio at over 2:1. The debt covenants required the company to maintain current ratio at 1.5 and company is exceeding this. As per comparison with the industry the current ratio is 2.84 for 2009 average and the company has 2.56 for 2009. The ratio is slightly lower as compared to the industry however this is a still better current ratio. The company is in a strong position to pay its debt obligation. There is less chances of difficulties in payment.

Talking on the quick ratio the company has quick ratio of 1.24 and is also indicates sound liquidity standing of the company. It shows the most liquid assets that are present to cover up debt obligation or current liabilities. As such for every $1 of liability company has $1.24 of asset in place.

The net working capital over asset ratios shows the working capital as a percentage of total assets. The company has fair level of NWC over asset percentage, this however due to the cash reserves that the company has been maintaining. The ratio is revolving between 30%-40% in past years. This cash retention however causes loss of marginal opportunity to invest cash and yield high return on it rather being idle.However this fair ratio indicates that company has better liquidity and has better ability to pay obligations against its debtors. (Ratio analysis, 2002)

Improvements

The company has to make some improvements, the company has high current ratio but it is no up to industry benchmark.  The company should prefer use of debt for buying of inventory this cause less outflow of liquid assets. Another option is use of sweep accounts, which implies that to transfer       excess cash into some interest yielding account unless these funds are required and then sweep or take back funds out of that account when needed.

Another tactic might be to reduce the current liabilities, the company can decreases account payable by settling the transactions. And again use debt for settling. The payment to suppliers on time also cause saving of interest expense and thus saving of cash and this also increases liquidity.Since the company has $500 million line of credit available this can be for the improvement of the liquidity ratio. However since this also a debt so the ultimate result of using debt for liquidity improvement should be positive…………….

This is just a sample partial work. Please place the order on the website to get your own originally done case solution

Gemini Electronics Case Solution
Share This