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GEMINI ELECTRONICS Case Solution & Answer

GEMINI ELECTRONICS Case Solution

Quantitative Analysis

Liquidity Analysis

The liquidity position of the company is analyzed using the industry average provided in the case. It can be seen that throughout the years provided in the case, the current ratio of the company is always higher from 2 which shows that the company has enough amount of current assets to pay off its liabilities in the short term. The requirement to be met for the debt covenant for this particular company is just 1.5. As far as the industry average is concerned it can be seen that the ratio is 2.84 for the year 2009 which is higher from the company’s perspective as it is only 2.56 however, still it is better. Moreover, from all the remaining ratios of liquidity, it can be concluded that the company is better able to manage its short term obligation using its short term assets. 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)

Liquidity Ratios
Quick Ratio 1.10 1.14 1.38 1.25 1.24
Current Ratio 2.22 2.35 2.68 2.52 2.56
Cash Ratio 0.54 0.58 0.75 0.63 0.60
Net Working Capital 696,760,110 1,828,760,917 3,204,362,874 3,277,892,644 3,663,333,120
Net Working Capital/ Total Assets 33% 42% 46% 39% 37%

Profitability Analysis

Looking at the profitability condition of the above company and comparing it with the industry average reveals the fact that the company has maintained strong position with the help of the efforts placed by the management. Despite of the decreasing trend in the gross margin, operating profit margin as well as in the net profit margin of the company from the year 2005 to the year 2009, the values are still attractive from the perspective of industry average which are yielding lower results. This proves that the company has much more to offer for its shareholders than the other existing competitors. Moreover, it also shows that the company is very efficient in cutting the cost for the smooth running of the business.

Profitability Ratios
Gross Profit Margin 38% 42% 42% 35% 34%
Operating Profit Margin 16% 18% 16% 13% 11%
Net Profit Margin 9% 10% 8% 7% 6%
Return on Assets 9% 17% 13% 11% 9%
Return on Equity 24% 42% 35% 29% 21%
Return on Capital 9% 17% 13% 11% 9%

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