Finance for managers
Financial information includes various facets and information depending upon the objective of the study. Many business firms provide financial information to the management so that the form can take better decisions towards the growth of the firm(Kuhnen, 2015). The financial information for the firm comprises of data sets, budgets and worksheets that help the management in analyzing the overall situation of the organisation. This report will briefly explain the financial performance of Chesterfield Ltd by identifying its strengths and weakness. Moreover, as the study progress, it will also discuss the ratio by evaluating their values and purposes towards the firm. Finally, at the end of the report, it will also discuss the additional information in regards to Chesterfield Ltd by looking at their financial statements.
Detailed analysis of Chesterfield Ltd in 2018 compared to 2017 along with identifying the strengths and weakness
Analysing the performance of Chesterfield Ltd in 2018, it has been identified that in comparison to 2018, during the year 2017, the gross profit margin of the company was higher. Calculating the gross profit margin% of chesterfield Ltd during the year 2018 and 2017, it showed a negative growth of 6.1% which indicates that the business has a lower percentage of sales that increases the expenditure of the business(Chesterfieldroyal, 2017). Moreover, slower growth of gross profit margin also indicates towards the tighter budget which means fewer funds and budget in terms of implementing business strategies to improve the operational efficiency of the firm. The gross profit for the firm decreased from 25.3% to 19.2% which further indicates that it diminishes the chances of generating a net profit. The lower the gross profit margin, the smaller the percentage to be shared between the profits and expenses. Evaluating the net profit margin of Chesterfield Ltd has been identified that the company is suffering from a negative net profit margin where the value decreased from 20.5 to 14.4%. The main reason due to which negative net profit margin rises mainly because when the company spends more than it earns during a particular period(Williams & Dobelman, 2017). Besides, the negative net profit margin also indicates the difficulties in cash flow because the firm is not earning enough to cover their expenses. As a result of the negative net profit margin for Chesterfield Ltd indicates that the firm will be depending upon lenders, shareholders, and investors to procure finance and manage their loans and debts.
Whereas, evaluating the fixed assets turnover ratio for Chesterfield Ltd it has been identified that the company has seen growth where the values have surged high by 0.88% from 0.66% to 1.54% from the year 2017 to 2018(Chesterfieldroyal, 2016). The positive growth of fixed assets turnover ratio for Chesterfield Ltd indicates that the firm is using its fixed assets to generate better sales than of its competitors. The higher fixed assets turnover ratio also indicates that the company efficiently uses its fixed assets to generate sales, whereas contradictory to it has been identified that low ratio indicates that the firm does not efficiently use its fixed assets to generate sales. Another positive aspect of the growing fixed assets turnover ratio is that it helps the investors in calculating the return on investment and the creditor uses it to analyze how well a company can repay loans and purchase equipment(Minnis & Sutherland, 2017). Capital gearing ratio is used by the organisation to leverage the financial information which demonstrates the degree to which a firm’s activities are funded by the shareholders funds versus creditors funds. Evaluating the capital gearing ratio of Chesterfield Ltd it has been identified that the values has grown by 20.39% from 3.42% in 2017 to 23.81% in 2018. Higher capital gearing ratio indicates that the company has a higher degree of financial leverage and can process their business cycle. Business organisation also uses capital gearing ratios for the calculation of preparation of issuing loans to the lenders(Bragg, 2018). Whereas, determining the acid test ratio of Chesterfield Ltd it has been identified that the firm has seen the growth of 0.55% from the year 2017 to 2018. Strong acid test ratio for the firm indicates that the firm is in the good position of paying out their debts. Whereas, the return on capital employed for Chesterfield showed negative values from 16.6% to 12.8 from the year 2017-2018. The negative growth by 3.8% for Chesterfield indicates that the firm fails to utilize its capital in terms of growing their business. Moreover, the negative growth of return on capital employed also indicates that the firm might be suffering from long term financing problem that restricts the growth of the firm.
Description of ratio, explaining its value and purpose
Ratio analysis is termed as the quantitative method which is used to gain insight into a company’s operational efficiency, liquidity and profitability by comparing information containing in the financial statements. Ratio analysis for the firm tells about the financial capability of the management by accessing their financial statements and historical data concerning perform all the activities within the management(Robinson, et al., 2015). The data that are extracted from the financial statement is used to compare and contrast the company’s overall performance over the period. The main benefits that ratio analysis provides to the organisation comprises of revealing the insight in regards to liquidity, solvency and operational efficiency. Moreover, ratio analysis can also be used to analyze trends that become useful for comparing the performance of the firm within the industry.
Fixed asset turnover ratio
A fixed asset turnover ratio is used by the analyst to measure the operational performance of the firm. Therefore, for the purpose, it becomes essential for the organisation to compare the net sales to that of the fixed assets and then measure the ability of the company to generate net sales from the investment of its fixed assets (Zainudin & Hashim, 2016). The higher number of assets turnover ratio indicates the company’s ability to invest in fixed assets in terms of generating revenue. Analyzing the fixed asset turnover ratio for Chesterfield Ltd it has been identified that the firm has seen growth from the last year by 0.88%. The growth of fixed asset turnover ratio indicates greater efficiency in managing the fixed assets investments. The purpose of using the fixed asset turnover ratio is that it indicates how efficiently the company generates sales from its existing fixed assets.
Current assets ratio
The current asset ratio is termed as a liquidity ratio that is used to measure the company’s ability to pay short-term debt and obligations. Using the current assets ratio also helps the investors and the analyst how a company can maximize the current assets on its balance sheet in terms of satisfying its current debt and payable. Evaluating the current asset ratio of Chesterfield Ltd it has been noted that the firm has seen growth where the values in the year 2017 were 1.61 and during the year 2018, it was 2.63(Chesterfieldroyal, 2017). The growth in current asset ratio by 1.02%, interpreting the current asset ratio for the firm it has been identified that the firm is capable of paying their obligations as because the firm is becoming capable of paying their debts and liabilities. The purpose of the current asset ratio is to make the investors understand the firm’s ability to cover their short term debt along with their current assets.
Acid test ratio
The acid test ratio within the organisation uses the balance sheet of the firm in terms of identifying whether it has a sufficient amount of short-term assets to cover its short-term liabilities. Evaluating the acid test ratio of Chesterfield has been identified that from the year 2017, the value has increased by 0.55% in 2018. The growth in the acid test ratio indicates that the firm has liquid assets to pay its current liabilities. Moreover, a higher acid test ratio also indicates about enough cash has been generated to improve the productivity of the firm(Bragg, 2018). The acid test ratio disregards the current assets ratio and hence it becomes difficult for the firm to liquidate quickly such as inventory. The purpose of the acid test ratio is to calculate the financial position of the firm concerning pay their debt for both short term and long term periods.
Inventory turnover ratio
Inventory turnover ratio is being used by the business organisation because it becomes important for the companies to show whether sales efforts are effective or are whether the cost is being controlled. Inventory turnover ratio is also useful for the management because it helps the firm in measuring how well a company generates sales for the inventory(Kanapickienė & Grundienė, 2015). Determining the inventory turnover ratio for Chesterfield enterprise it has been identified that the inventory turnover ratio for the firm in the year 2017 was 5.39 whereas, during the year 2018 it was 4.79. The slow growth of inventory turnover ratio indicates that the firm is suffering from weaker sales and declining demand for the company’s product. Moreover, it also indicates that the firm is overstocking and as a result, high storage cost is increasing. The purpose of the inventory turnover ratio is to identify how well a company manages its inventory levels and how frequently a company replenishes its inventories.
Capital gain ratio
The capital gain ratio is referred to as the amount of debt that a company has relative to its equity. Evaluating the capital gain ratio of Chesterfield organisation it has been identified that the firm is enjoying a high capital gain ratio of 23.81% in the year 2018, as compared to 2017(Chesterfieldroyal, 2016). The higher value of the capital gain ratio for the firm indicates that the firm financial position in the business environment has increased. The funds that have been generated are either hold as securities that are used to purchase inventories. Moreover, shareholders also use this to calculate taxes that are paying from the organisation.
Additional information concerning the company’s performance
Evaluating the financial statement of Chesterfield Ltd it has been identified that the chairman of the firm has pointed out some of the challenges that the firm needs to minimize to achieve the success which is as follows. Developing sustainable clinical services that are dedicated to providing improved care services in terms of clinical effectiveness, patient experience, and patient safety. Ensuring strong and capable leadership that embeds a culture of true staff engagement and involving in decision making(Chesterfieldroyal, 2016). The executive chairman also pointed out some of the critical issues such as transforming the business by recruiting staff and management who are dedicated to performing towards improving the overall performance of the management. The firm has also taken important steps towards improving the financials of the firm such as the firm has planned to purchase plants and equipment plus intangible assets of more than £ 5,000 to strengthen the financial position of the firm(Chesterfieldroyal, 2017). As part of their future activities, Chesterfield Ltd has taken up the decision of collaborating with health and social care organisation in South Yorkshire and Derbyshire to maintain regional sustainability and provide better-enhanced services to the people. The information that has been collected from the financial statement of both external and internal sources has been identified that the enterprise is looking to tailor-made the services for the people and focus on community development.
The overall report was based upon evaluating the financial performance of Chesterfield Ltd where their strengths and weakness were evaluated based on their overall performance in the year 2017 and 2018. Ratio analysis was performed to understand their overall growth pattern and what steps are needed to be performed to improve the overall performance of the management. Furthermore, the important aspect of the firm concerning their financial performances has been determined based on which it becomes easier for the management to take decisions and achieve financial success for the firm.
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