The company’s net profit ratio increases from 5.7% to 7.0% while the gross profit shows a decrease. The net profit is showing a good trend. This means the expense management has been handled well. For example, advertising expense is even cut and saved by 2,000. Administrative expenses are also controlled well. However, the decrease of gross profit means the increase of sales could not follow the step of the increase of the COGS. The purchase price of the inventory might go up and selling price is suppressed due to the competition of the peers.
The company’s ROE more than doubled on the 2012 basis. Although it means the profitability status is enhancing to a great extent, specifically, the capital is observed to be drawn out by almost half of the 2012 amount. The business is now more supported by the debt capital, indicating higher risk of business operation.
Managerial Performance is generally going down due to the Inventory Turnover and Accounts Receivable Turnover are deteriorating. Longer inventory turnover days may indicate thatproducts are more difficult to be sold.One of the possible reasons may lie in the less expenditure on advertising which leads the customers to other brands. However, as the COGS increases by a greater extent than sales, the managers seem not efficient in managing the stock. In addition, longer Accounts Receivable Turnover probably reflects the tightening of the liquidity and more serious short-term insolvency risk. As the sales increase (21%) is less than Accounts Receivable increase (38%), the company relies more on the credit sales to win over customers. The whole macroeconomic condition is not good currently, thus the outcome is still falls to an acceptable range but signs of slowdown are showing up.
Financial Stability is also deteriorating concerning both short-term and long-term as Current Ratio and Liquid ratio are decreasing by a comparably big degree. This indicates the ability to pay liabilities in time is affected. In addition, the accounts payable increases by a great amount from 28,400 to 52,300, possibly reflecting the company’s difficulty in paying off the payment to the suppliers. Although the short-term ratios are still above critical value of 1, more risk would be added on to the company in the short-term and long term. Furthermore, the equity capital is shrinking, from which investors’ pessimism of the company’s future can be seen.
(a) Gross profit (%) measures the difference between sales revenue and cost of sales ( and its proportion in the sales revenue), mainly concerning the price of products and the purchasing raw material and inventory cost. It may reflect the price or cost advantages and strategies of the company. The greater, the better.
(b) ROE measures company’s profitability status through calculating the ratio of net profit to the company’s average total equity during the financial year. It also means the ability of acquiring profit from the equity capital and the efficiency of the capital utility. The greater, the better.
(c) Inventory Turnover measures how long the inventory could be sold out and the efficiency of the inventory management. Generally, the shorter or less is the value of inventory turnover (days), the better the company’s management is.
(d) Accounts Receivable Turnover measures how long the debt from the buys could be received and reflects the management efficiency of the company. The shorter the turnover days, the better is the cash liquidity and the management will be. However, longer turnover days could also reflect the dependence on credit sales strategiesand less strength in the market.
(e) Liquidity ratio measures the company’s ability to handle short-term solvency problem, especially concerning those could be turned to cash quickly. Also, the ratio reflects the business efficiency of management.
(f) Equity ratio measures the company’s financial structure, the portion of financing from the equity and from the debt. The smaller value of ratio means greater leverage of the company, and the long term risk aroused from the debt would be increased.