Hubei Lantian Case Solution
1. Financial analysis of Hubei Lantian and assessment of the company’s current performance and financial condition
As per the financial analysis of current performance and the financial condition of Hubei Lantian,it can be seen that the gross profit margin of Hubei is showing an increasing trend after the fiscal year 1997. The net profit margin is showing an increasing trend of almost 23.45%.On the other hand, the return on equity of Hubei Lantian is 19.81%, which is also higher among the rest of the competitors on the market. Hence, this can considered to be a significant growth. Therefore, by taking account of these financial ratios the current performance of Hubei Lantian can be evaluated effectively.
The other financial ratio that is of higher importance is the equity ratio, which is almost 0.77 and the debt ratio is almost 0.23 as per the Financials of Lantian. Moreover, current ratio and the quick ratio of Lantian are lower than a minimum threshold of 1. Hence, it is also worth noticing that if Emily Wang is really going to make a purchase from this company, then there will be a need to take into account the audited financial statements as well because it will have the ability to present a clearer picture of the company.
Despite this, the other most significant ratio is cash to liability ratio which seems to be a cause of concern to Emily Wang as well as the shareholders because it is 0.30 and this may create problems in the future if the company has been acquired.Therefore,there is a need to discuss the matter with the seniors of the company by involving Emily Wang who can also prove to be helpful for the better future of the company.
Moreover, the growth rate of revenues from main businesses is reflecting a decreasing trend by a percentage of almost 57%. On the other hand,it is better and also the interest coverage ratio is improving significantly. Hence, this shows that the financial condition and the performance of Hubei Lantian do not seem to be very attractive at the moment, how ever they can be improved in the future by devising effective strategies.
2. Comparison of Hubei Lantian financial performance with its peer companies in the fishing industry and the food and beverage industry.
By taking account of the financial performance of Hubei Lantian,the existing circumstances that are reflecting that the company has the ability to outperform its rivals but some areas are still posing a threat to the company’s going concern status. Moreover, it is also evident by taking account of the food beverage industry and the fishery industry that the inventory turnover ratio of Hubei Lantian seems to be low as compared to the rest of the competitors who are operating in the same industry sector.
Hence, this matter has to be brought into the attention of the management of Hubei Lantian who are responsible for the day to day operations of the business because if the inventory has not converted into sales then it may not prove advantageous for the company which will in turn give rise in the inventory holding costs and which will also ultimately have an impact upon the holding period of an inventory. As a result, once the inventory holding costs starts rising then the management would not be able to make an effective use of the working capital for the rest of the activities under consideration…………
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