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Finance Case Study: Computron Essay

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Finance - Case Study

Situation - Computron (expansion Program) A. Sales have been below forecasted numbers B. cost have been higher than projected C. They suffered a profit loss instead of a gain D. Management, investors and directors are concerned. E. It'd tsking s long time for dvertisement programs to get across all business units, including sales and operations

Problem - Computron is faced with alot of problems that have impacted their business and caused them to suffer financially. Looking at some of their financial ratio will help give understanding to some of their immediate concerns.

Problem 1 - low liquidity (current Ratio)
In 2007, Computron liquidity dropped significantly from the previous year. Their …show more content…

Their inability to receive a payment has impacted their revenues. Days sales outstanding wouldn't be such a huge problem if Computron had buying power with their suppliers, but because they trail other companies in their industry, its apparent they do not have power to dictate when they will receive their payments.

Fixed Asset Turnover - (equipment plant under utilize/labour)
In 2007, fixed asset were 6.2 down from 2006 total of 10 and the industry total of 7. Computron struggles in communicating their ad program has hurt them in utilizing their fixed assets effectively. Their plant and equipment have experience a lot of down time instead of being put to use. Additionally, employees are not being utilized because with increased down-time, individuals may not be working efficiently to carry-out the company's business goals.

Debt management -high debt ratio
Debt ratio (80% - industry 50))- Computron incurred an enormous amount of debt in 2007, partly due to their financing the new project. Debt was the primary source of income to fund this project and with such a high debt ratio present problems with creditors. Creditors usually desire a lower debt ratio just encase Computron goes into bankruptcy or fold. Their debt ratio is considerably higher than the industry and with Computron struggles with liquidity it can be a huge burden on the company's ability to pay interest payments.

Solution - gain more leverage by cutting

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