the relationship between working capital management and the profitability

One of the most important parts of a business is the financial management. Each and every other company always strives to have the best management when it comes to its finances. Most organizations have come up with plans and marketing strategies. This is due to the fact tat when companies finances are poorly managed then definitely the whole company is likely to be in trouble or even come down. The financial techniques and principles in most cases comprise of quite a number of aspect for instance those that we intend to look at in this paper-the financial reporting. This will basically comprise of the quality of data and information that the company produced to some of the various stakeholders. Other than that, the paper will also analyze the financial position and performance of the organization using accounting ratios. Another important aspect of financial principles is costing. This basically entails the cost of producing goods and services in the company and how it generally affects the overall performance of the company. The paper will also delve into how important costs in the pricing strategy of the business are. It will further come up with a costing and pricing system that can help the company improve. Last but not least, we focus on the company's budgets and budgetary control. Here there are very important areas that have to be looked into, for

The decline of inventory turnover presents the incresed possibility of inventory obsolescence which is likely to be assessed as higher business risk. In debts to equity part, the ratio in current year is much higher than that of preceeding year, which means the extent of use of debt in financing company is much higher than before. Pinnacle has used most of its borrowing capacity and has little cushion for addional debt.This action brought high business risk to Pinnacle. In addition, Pinnacle puchase more inventory in current year that that of preceeding year, and net sales are increasing also compared previous year. However, the net income is decreased significantly. These changes show expenses (maybe direct or indirect) have increased dramaticly. The company uses more expensive materials and labors to manufacure and sell products.

Even though most of these expenses are not of big magnitude their value can add up and affect the company’s finances. Some of these items are accrued time for employees, bonuses, benefits, utilities, improvements and taxes. Some additional sources of working capital include; cash reserves, profits, equity loans, line of credit, and long term loans.

The company’s cash has been decreasing over the 2 years however its current and quick ratio has gone up, from 2.26 to 2.53 and 1.06 to 1.26 respectively, due to its increase in accounts receivable and inventory, the company may need to minimize amount of sales based on credit or require however down payment on its installment sales. Haefren must also be offering more lenient credit terms to its customers since its average collection period has also gone up significantly, this could be correlated to the lax credit terms Wiegandt currently offers Haefren. Haefren’s return on equity is also declining, using the DuPont method, as a result of our low net profit margin and our decreasing asset turnover (as a result of lower sales and higher assets). The company currently finances itself with bank loans which have decreased while cash is decreasing, the increase in debt may be growing to an unsustainable rate as our debt to equity ratio has almost doubled from 5.84 to 9.37 between 1993 and 1994. This poses a major a problem for the corporation as cash and sales are decreasing and loans are increasing, the company may need to liquidate the warehouses. The warehouses could be a major factor in another problem: low profitability. Low operating profit margins of 1.6% suggests high operating expenses. The company may need to cut operating expenses by reducing by

Examine the concepts of working capital and the financial analysis of a company’s working capital position.

Based on information given, we established the free cash flows from operations for Torrington, for the period 1999 to 2007. We made the assumption that net working capital was 7% of sales for Torrington, based on historic patterns. From this assumption, we found “Change in Net Working Capital” for the selected years. Next, we chose a value for “Capital Expenditures”, again based on historic patterns. From this we computed the “Free Cash Flows to the Firm”.

On the other hand, the company has been growing constantly. In deed, according to the net income estimation for 2007 (see Table 7) the company increases its profits $25 thousand dollars more than the previous year. This is an evidence of how the company is been management and of its willing to grow year after year. Nevertheless, the first quarter of 2007 the working capital only has increased by $7 thousand dollars, which is the difference between the current assets and current liabilities but the importance of this is that according to the rotation on receivables and payable accounts, shown in Table 5 and 10, leads us to the conclusion that the company will have to pay its suppliers

Also, according to its leverage ratios, the company’s debts are not only very high, but are also increasing. Its decreasing TIE ratio indicates that its capability to pay interests is decreasing. The company’s efficiency ratios indicate that despite the fact that its fixed assets are increasingly being utilized to generate sales during the years 1990-1991 as indicated by its increasing fixed asset turnover ratio, the decreasing total assets turnover indicate that overall the company’s total assets are not efficiently being put to use. Thus, as a whole its asset management is becoming less efficient. Last but not the least, based on its profitability ratios, the company’s ability to make profit is decreasing.

The Corporate Finance course has helped me, as a student, gain intelligence to make informed decisions upon analyzing the details for Sunflower Nutraceuticals (SNC). These decisions will influence the company’s overall growth annually. In addition to various details of the SNC Company I have also made various decisions in each of the phases of SNC’s simulation which has an estimated values to figure out the results. This paper also explains how SNC’s decisions are influenced with regards to the working capital followed with the final step of evaluating the general affects associated with the limited

The purpose of the report is to understand the capital structure of the chosen company on the basis of the financial statements of the company which includes the income statement, balance sheet and the cash flow statement of the company and do the capital analysis of the company as well to find out the advantages and disadvantages in working capital of the company and suggest company logical and useful ways for growing their economy.

Analysing the historical values of the operating margins from the Income Statement, we forecast values for the 2007-2009 period. The executives of BKI expect the firm to achieve operating margins at least as high as the historical ones. Thus, we took averages and slightly adjusted them toward higher values. Since the declining tendency in the last three years was cause by integration costs and inventory write-downs associated with acquisitions, which already have been completed. To the EBIT, estimated by using those margins, subtract the taxes, Capex, adjust for Depreciation, Amortization and change in Working capital. The capital expenditures were just over $10m on average per year. The company is expecting the Capex remain modest. Thus, we assumed a Capex of $10m for the next three years. We estimated Net Working Capital by using the average ratio of NWC/Net income of the last three years.

As given in the working capital for the year 2007 is $183,129 which compared to previous years has fallen drastically. This means that the financial health of the company is deteriorating and this will keep on happening until the company improves it working capital. In terms of Accounts Receivable, Inventory and/or Accounts Payable the age period is 157 days, 12 days and 57 days respectively. The best way to calculate this is to use ratios and for this purpose we will first look into the Days Sales in Inventory which is 365 / Inventory Turnover which is given as 12 days. This means that the company will receive their inventory 30.4 times in 365 days which is very good for the company’s cash flow and will thus benefit the bank as well.

As a shrewd financial analyst you observe that the net working capital of the firm has typically been about 20% of the annual revenues. How would you incorporate this observation into the analysis?

The relationship between capital structure and firm value has been discussed frequently in the literature by different researcher accordingly, in both theoretical and empirical studies. It has also been discussed that whether the firm has any optimal capital structure that has been adopted by an individual firm, or whether the proportions of debt usage is completely irrelevant to the individual firm value.

In this paper I’ll analyze the fundamental differences between the working capital structures and components for Google and Oracle, and speculate upon the main reasons why such differences exist; how each company could improve its working capital positions. As a Wall Street Analyst who has to recommend one of the companies as an investment to a company’s clients; based solely on that company’s working capital; as an Investment Banker who has to recommend loaning a substantial amount of capital to one company based solely on that company’s working capital.