Management of Organization: Lawsons Case

Accounts payable days saw a major increase going from 49 days in ’93, to 65 days in ’94. Although Wiegandt has been flexible with credit terms, Baum is far exceeding the net 30 terms and is not taking advantage of any discounts.

Negative findings of the company are apparent when looking at the activity ratios. The receivables turnover ratio has been declining since 2001. This decline in receivables turnover implies that company is not being as efficient in the collection of accounts owed as it should be. Not collecting the credit in a timely manner means that they are not gaining interest for the firm, but potentially giving others a free loan for the time being. Furthermore, the asset turnover ratio for Krispy Kreme has been declining since the company went public in 2000. As seen in Figure 1, the ratio was at a high in 2000 at 2.10 and

Answer: Aging schedules definitely help a company keep track of which of its customers are paying on time, and are useful in figuring cash flow. In this case, it is apparent that the majority of accounts receivable by the end of March are less than 30 days old (80.8%). By the end of June, that percentage goes down to 63.7%. By the end of March, 19.2% of accounts receivable are between 30-60 days old, and by the end of June, there is 36.3%. 0% of accounts receivable get to be over 60 days old, which indicates payment.

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

That would be favorable. In case of economic downturn, this credit terms policy may not appropriate as the distributors cannot cover their payments Deutsche Brauerei’s receivables will be uncollectible. For the matter, Oleg’s proposal to relax the deadline payments also causes a higher risk of receivable accounts. We also suggest that the company should predict uncollectable account receivable reliably to manage the company’s cash-in-hand because having cash in hand is more benefit than having money bonded with account receivables. However, the allowance of account receivable from the projection was expected only 2%. In the emerging market like Ukraine, where every of process is new, it seems to be a bit exaggerate for this number. The company should review the amount of allowance to cover all risks or unexpected situation that might be happening.

The inventory turnover is much higher than the one shown in the rest of the industries. This ratio shows that the inventory is well managed in compared to the competitors.

This higher percentage illustrates more advanced efficiency management of the company, utilization of equity base, and return to investors. The significant decrease in Lawson’s equity may be a concern to his eligibility to ascertain the loan.

Average settlement period for trade receivables assesses a company’s ability to manage credit it issues to customers and the number of days it takes to collect receipts from the sales made. Throughout the 5-year period GSK’s collection days has been fairly stable and

Drax group Plc on the other hand, has experienced drastic compression of its equity value. As of the year 2011 the company was faced with a dept ratio of about 0.54. This failed to reduce, and instead went higher and as at the end of 2015, the company dept ratio was about 1.02. This simply means that, the company dept is higher than the company’s value, therefore financial distress in future is highly likely for Drax group

The balance has seen good growth in all areas over the last three years. The company had a lot of cash at the end of 2014, with $1,923,660K, this number is too high, it easily covers its current liabilities and should be putting the cash to better use, as it is a growing company, like investing in the production of new cars, research and development.

Spirit’s Account Receivables that are older than 120 days is very high (43.18% of total number of receivables). This high percentage of very old Account Receivables could mean that Spirit may not be able to collect most of these amounts. A closer of look at these receivables will be necessary, because this a big red flag. We would want to know more about why there is such a large amount of Account Receivables that are older than 120 days. It could be that Spirit’s collection efforts are not adequate enough to collect receivables in a timely manner. Other factors could also be the cause or a combination of issues.

6. Stock turn over ratio Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not and for a fashion clothing company 5 times would be expected and is stable compared to the previous year. This compares favourably with Kathmandu which as a discounting chain is only turning over stock at 2 times a year.

This ratio demonstrates how efficiently the business is using inventory (or raw materials) in the production cycles. Having to much inventory can be expensive to the business in carry costs (cost to hold and manage that excess inventory), spoilage (not being able to use some inventory or having it become obsolete before being utilized) or interest if it has been financed, etc., etc.

has become negative and the company has been making losses in the last two years. Obviously,

Capacity expansions could stretch liquidity. The company was zero-debt until March 31, 2013, a result of robust cash flows and prudent fund management. The company enjoys significant working capital limits, which remain largely unutilised.But according to the concall scripts it was found that the company is planning for capital expenditure of Rs 550,600 and 300 crores respectively in next three years mainly for capacity expansion.