ABC Company Sales
This company has relatively high net sales figures, which indicates its scale. Liquidity ratios are growing at a reasonably confident pace, indicating its ability to repay its short-term obligations. The activity ratios also show a slight increase, except for accounts payable turnover. Moreover, the average collection period is growing, which may affect the company’s operating activities, as the collection of debts will be constantly delayed and grow. If the company does not improve communication and agreement on conditions with customers, sooner or later, this will affect its financial performance and operations.
The company’s debt decreases annually with growing assets. However, the high Times Interest Earned Ratio exposes the company to a particular risk since significant long-term liabilities may turn out to be a problem in paying the related interest and taxes under specific dynamics or crises. EPS figures have declined markedly since 2013, after which they show a slight increase. At the same time, price-earnings are constantly growing, indicating the company’s stability in the stock market. At the same time, the company is quite efficient in operating activities, as shown by the profitability ratios group. Consequently, the company’s management knows how to capitalize on any situation, although it is somewhat risky due to high debt.
ABC Company Financial Analysis
The finance department can analyze the above information in past years’ dynamics over a longer distance. In addition, the data obtained should be compared with industry averages concerning the company’s direct competitors. Finally, the finance department can give the most accurate estimate of the company’s value to buy.
The sales team should buy through an intelligent model of extracting practical benefits for shareholders. However, this department should investigate the reason for such a long average collection period and possibly correct it. In addition, sales must consider the company’s noticeably increasing debt when buying and calculate all possible scenarios up to the worst, assessing the company’s future profits.
The marketing department can work out schemes to reduce the average collection period with the help of various offers for end-users. At the same time, this department can evaluate the products to expand the budget for marketing purposes and determine how profitable the expected sales-cost ratio will be. Moreover, this department can conduct a study among the company’s regular customers on how much product diversification can benefit the company due to this acquisition.
Human resources must be based on the information received from the departments above; draw up a specific questionnaire during the absorption. As part of the questions to the employees of the company being bought, it is necessary to find out the reasons for the increase in the period of turnover of credit debt, the need to work at a high risk of debt, and clarify the strengths of employees. The most active ones can be included in the sales department to improve the efficiency of the company’s operations.
The legal department must resolve all possible obstacles when buying a company. This department needs to find out the reason for the enormous debt, the absence of all kinds of encumbrances, and bank collateral on various company assets. Finally, this department should conduct an audit to assess the validity of financial indicators and control systems to avoid misinformation in the data on which the decision to invest in the company is made.
ABC Company Competitive Advantage
Compared to industry averages, the company does not show remarkable success. The efficiency of earned resources is high only within the company, while other manufacturers demonstrate much higher indicators, which the company will develop for decades at the same growth rate. On the other hand, management effectiveness is confirmed by significantly higher ROE and ROA compared to other industry representatives. Good management can keep a company growing even at high risks (Rashid, 2018). The company is highly dependent on sales, which are about twice as large as all the company’s assets. Investing in a company carries many risks that can be justified by effective management, but at the same time, it is imperative to consider other industry players with more attractive financial liquidity and profitability.
Reference
Rashid, C. A. (2018). Efficiency of financial ratios analysis for evaluating companies’ liquidity. International Journal of Social Sciences & Educational Studies, 4(4), 110. Web.