...Overtrading: Definition, Causes, Consequences and Remedy We have heard the word “Overtrading” used by bankers, credit rating organization and analysts. It’s therefore important to understand what is Overtrading, how it is cause and what serious repercussions will happen and as financial executive what we can do. So what is Overtrading? In simple word, it denotes a condition in which the resources in particular the liquid resources of a business are insufficient to maintain the existing level of trading. This particularly happens during the booms when companies increase revenue without considering it means to finance the increase turnover. In colloquial terms, we can also say that the management has failed to cut their coat according to their cloth. The Causes of Overtrading are as follows: Internal Factors: • By expanding turnover without the correspondingly increase in working capital. For example, assuming the present turnover is $12 million and average debtors of $250,000. If turnover increase by 30% and assuming the same credit terms on the new turnover, its debtors are likely to rise by 30% i.e. $750,000. So this $750,000 needs to be obtain from existing working capital resources or injection of share capital. If management ignores this point by “overstretching”, it will face the “Overtrading situation”, • By increased investment in fixed assets like land and building, machinery, etc and acquiring investments in a subsidiary or associated companies without...
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...Managing Growth Simulation FIN/571 Managing Growth Simulation Introduction The complete course has reveled us the great idea to influence our trends and intelligence while analyzing the entire details of Sunflower Nutraceuticals (SNC) company followed with all the decisions of the company which tends to increase their working capital and maximizing the overall organizational growth potentially with respect to time, as we have figured out the data and change in numbers below which reflects the growth annually. Moreover in addition to various details of the SNC firm we have also examined various decisions which took place in each of the phase of SNC’s simulation which has an estimated values to figure out the results, secondly the paper also describes how SNC’s decisions are influenced with respect to their working capital followed with the final step of evaluating the general affects associated with the limited access of financial mix. Sunflower Nutraceuticals (SNC) Background No wonder SNC is a privately owned Nutraceuticals company , more over one can say it is a wide distributor which provides all the vital dietary supplements such as herbs for women’s, vitamins, and minerals for all the consumers (mainly women’s), distributors and retailers. (Harvard Business School Publishing, 2012). Once the business was initiated after 2006, SNC expanded their operations and came up with various retail outlets in the nutraceutical...
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...Working Capital Simulation: Managing Growth FIN/571 October 13, 2014 William Stokes Working Capital Simulation: Managing Growth 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 access of financial mix. Sunflower Nutraceuticals (SNC) Background Sunflower Nutraceuticals is a privately owned company that is a wide distributor providing numerous dietary supplements for customers, distributors, and retailers (University of Phoenix, 2013). After starting the business in 2006 as an internet based company, SNC expanded operations into retail outlets as well as introducing some new private labeled products. Although SNC has the potential to grow into one of the major nutraceutical distributors in the industry, the company still struggles to break even. On more than one occasion SNC has been forced to exceed the company’s credit line of $1,000,000 to finance payroll and other operational needs. SNC has a somewhat restrictive...
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..., COMPANY PROFILE Company profile-Novus pharmaceuticals ltd is a new strategies business unit (SBU) of Abdul Monem group. The group has a long reputation as the best road construction company of the country. More over the group has two block buster brands Coca-Cola, igloo ice-cream. Bangladesh pharmacy markets have known to be one of the best value addition sectors among all industries. With better urbanization and economic upliftment people will have more access to modern medicines. Novus will capitalize this opportunity by offering highest quality medicines at an affordable cost to serve people locally and globally. Combining the group image and applying appropriate marketing strategies Novus will established itself as a leading player Bangladesh pharmacy market. Company Index Score Current Index Score Historical Index Score * Novus Pharmaceuticals Ltd. currently scores 50% in the index. * Novus Pharmaceuticals Ltd. is currently ranked equal 10 out of 4206. This is in the top 0.24% of Parma companies ranked in the index. * Novus Pharmaceuticals Ltd. is currently ranked equal 19 out of a total of 35419 included in the Info Grok Company Index. This is the top 0.05% of all companies. * User perception of the company stands at 50%. This differs 0% over the score attributed to the company by other scoring factors. Mission & Vision Mission To become the most valued partner of customer care by researching...
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...Conch Republic Electronics Conch Republic Electronics is a mid sized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic developed a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has performed a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively...
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...Financial Audit Liquidity: Ben & Jerry’s seem to have low risk compared to the industry standards; they have no trouble meeting short-term obligations. The CR (B&J = 3.59; I =2.3) and QR (B&J = 2.66. I =1.1) show that they are currently at a lower risk than the overall industry. However, this difference is explained when looking at accounts receivable. It seems as though the A/R collection days are much higher than the industry (B&J =29.2, I =16.4). This may be a result of Ben & Jerry’s having friendly relationships with its local dealers and societal approach. There seems to be significant room for improvement here, if Ben & Jerry’s can start collecting A/R quicker, while still being less demanding than the industry standards. Net working capital has increased every year, with a significant jump from 1992 to 1993. Even though the rest of the industry spends vast amounts of resources on marketing and advertising, the lack of paid marketing doesn’t seem to be affecting Ben & Jerry’s. Their sales have also increased every year and they seem primed for continuing sales with their new lines of lower fat frozen yogurt items. Despite slow returns on A/R, Ben & Jerry’s liquidity seems to be acceptable at this time. Capital Structure: Ben & Jerry’s has very little capital structure risk compared to the industry; which indicates its cost of capital is relatively low. Both D/E (B&J = .659; I =.903) and D/A (B&J =.40; I =.46) are well below the industry average. There...
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...ARB Corporation Limited is an Australian public company which designs, manufactures and distributes automotive accessories. ARB's leading products include the ARB Air Locker differentials, ARB Bullbars, and the Old Man Emu shocks and suspension products. ARB is listed on the Australian Securities Exchange under the code ARP. The company employs approximately 860 people, and is headquartered in Kilsyth, Victoria. Major Customers & Competitors ARP has steadily built on its traditional 4WD-enthusiast customer base. ARP also supplies products to original equipment manufacturers in Australia, including Nissan and Toyota. Other important customer segments are mining companies, government departments, commercial fleet owners, 4WD tour operators and the Australian defence forces. ARP's competitors include other 4WD accessory manufacturers. Industry analysis The profits in an industry are a function of the maximum price that customers are willing to pay for the industry’s product or service. The average profitability of an industry is influenced by the ‘five forces’. (Palepu, Healy & Bernard et al, 2008) ARB Corporation limited is segmented into Motor Vehicle Accessories industry which is advancing rapidly on a worldwide basis. The growth of motor vehicle industry is directly related to the growth of vehicle accessories industry and automotive parts industry. It has shown that in the recent past, the growth rate of automobile accessories industry has been four times higher...
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...5. What should we do? A decision has to be made on the possible construction of a new ship to meet the demands of a charterer, which wants a contract of only 3 years. Based on the calculation of the cost of construction against the value of the contract, it is recommended that Ocean carriers should not go ahead with the construction. However, if a strategic alliance can be created with another carrier to lease their vessels, Ocean Carriers should accept the contract. What does Mary Linn has to consider? 1. Evaluation of the amount of expected returns over the life of the present contract. 2. Evaluation of the value of the cash injection into the project. Expected Returns: Considering that the ship was specifically constructed for this contract, the expected return for this case will be made over the contract. Without this contract the cash could have been used for other opportunities instead (opportunity cost). And after this contract there is no guarantee of new contracts at the same value, so this has to be taken as a risk premium. 1. Is it worth the construction of a new vessel? During the first 3 years the vessel needs 8 days a year of maintenance and repairs. Number of days available for lease a year = 365 – 8 = 357 Return over 3 years contract. Note that the contract takes place 2 years from the present. Using the expected rate of inflation of 3% and that does not change over the 3 years. Year 1 = 20,000 x 357 = 7.140,000 PV(1) 3 = 6...
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...Working Capital Simulation Any Name Introduction The purpose of this paper is to analyze the Sunflower Nutraceutics (SNC) opportunities for investment, which will result in growth and increase/better cash flow for a forecast years of 10 years from the present year. Each stimulation should provide information/data that allows for opportunity and effects of the company’s working capital (future). The paper will analyze each phase of SNC’s simulation regarding working capital and its ability to have adequate cash flow for meeting debt (long and short) and operating expenses. Sunflower Nutraceutics (SNC) efforts to manage its working capital are a continuous process. SNC needs new business ventures to found from other capital invests in the business. SNC has to continue to generate working capital to pay its bills, take advantage of profit generating opportunities, expand on present and future growth of its business and compete in its market. Company Background Sunflower Nutraceuticals (SNC) is a privately owned nutraceuticals distributor, Miami, Florida. SNC distribute dietary supplements, vitamins, minerals and herbs for women of all ages. SNC has expanded its business into several new retail outlets and launched several private-label brands, which include an electrolyte sports drinks, metabolism-boosting powders for women and a vitamin line for teenage girls. SNC is breaking even, with relatively flat annual sales growth on total revenues of $10 million...
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...The American Chemical Corporation (AMC) is a large, diversified chemical producer. In 1979, AMC was forced to issue a tender to sell a Sodium Chlorate plant, near Collinsville, Alabama. Dixon, a specialty chemicals company, was willing to purchase the aforementioned plant for $12m with the option to invest a further $2.25m on laminate technology. The subsequent investment in Laminate technology was expected to eliminate graphite costs and reduce power consumption at the Collinsville plant by 15% to 20%. We will evaluate the acquisition of the Collinsville by Dixon at the proposed price. Table 1 identifies the assumptions that have been used for the evaluation of this acquisition. Table 1 Assumptions Reference Laminate Technology reduces power by a mean of 17.5% Pg 3, HBS 9-280-102 Laminate Technology is depreciated over 10 years Pg 3, HBS 9-280-102 Sodium Chlorate price growth is 8%, per annum Pg 4, HBS 9-280-102 Power cost (per KWH) growth is 12%, per annum Pg 4, HBS 9-280-102 Plant Life is 10 years Pg 1, Assessed work Sheet Plant Salvage Value is zero Pg 1, Assessed work Sheet EBIT is flat after 1984 Pg 1, Assessed work Sheet Capital Expenditures: $600,000 per annum after 1984 Pg 1, Assessed work Sheet Net Working Capital Remains flat after 1984 Pg 1, Assessed work Sheet Definition of “Flat” Pg 4 http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf 6.5% is the Equity Risk Premium Slide 21, Risk and Return, class notes- http://www.investopedia...
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...FINC 5000 Homework Assignment for Week 1 Click Link Below To Buy: http://hwcampus.com/shop/finc-5000-homework-assignment-for-week-1/ For Week 1, please turn in the answers to the following questions: Chapter 1: 1. Describe the field of finance. How is it different from the field of accounting? 2. What are the three forms of business generally encountered in the US? What are the main defining characteristics of each? 3. What should be the basic financial goal of a business? 4. In the context of a corporation seeking to maximize the wealth of its owners, how is “wealth” defined? 5. What are the three broad factors that influence the market price of a corporation’s stock? 6. Name three ways in which businesses can raise money from external sources when they need it for expansion or project funding. Chapter 2: 7. What is the purpose of a balance sheet? What are some examples of typical balance sheet accounts? 8. What is the purpose of an income statement? What are some examples of typical income statement accounts? 9. What is the purpose of a statement of cash flows? What are some examples of typical statement of cash flow accounts? 10. a. What are “Free Cash Flows (FCF)?” b. What is “NOPAT?” 11. What was Joe’s average, or effective tax rate in 2014? 12. What was Joe’s NOPAT in 2014? 13. What was Joe’s Free Cash Flow (FCF) in 2014? (Note: For this...
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...FINC 5000 Homework Assignment for Week 1 Click Link Below To Buy: http://hwcampus.com/shop/finc-5000-homework-assignment-for-week-1/ For Week 1, please turn in the answers to the following questions: Chapter 1: 1. Describe the field of finance. How is it different from the field of accounting? 2. What are the three forms of business generally encountered in the US? What are the main defining characteristics of each? 3. What should be the basic financial goal of a business? 4. In the context of a corporation seeking to maximize the wealth of its owners, how is “wealth” defined? 5. What are the three broad factors that influence the market price of a corporation’s stock? 6. Name three ways in which businesses can raise money from external sources when they need it for expansion or project funding. Chapter 2: 7. What is the purpose of a balance sheet? What are some examples of typical balance sheet accounts? 8. What is the purpose of an income statement? What are some examples of typical income statement accounts? 9. What is the purpose of a statement of cash flows? What are some examples of typical statement of cash flow accounts? 10. a. What are “Free Cash Flows (FCF)?” b. What is “NOPAT?” 11. What was Joe’s average, or effective tax rate in 2014? 12. What was Joe’s NOPAT in 2014? 13. What was Joe’s Free Cash Flow (FCF) in 2014? (Note: For this...
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...Overtrading Overtrading: Definition, Causes, Consequences and Remedy We have heard the word “Overtrading” used by bankers, credit rating organization and analysts. It’s therefore important to understand what is Overtrading, how it is cause and what serious repercussions will happen and as financial executive what we can do. So what is Overtrading? In simple word, it denotes a condition in which the resources in particular the liquid resources of a business are insufficient to maintain the existing level of trading. This particularly happens during the booms when companies increase revenue without considering it means to finance the increase turnover. In colloquial terms, we can also say that the management has failed to cut their coat according to their cloth. The Causes of Overtrading are as follows: Internal Factors: • By expanding turnover without the correspondingly increase in working capital. For example, assuming the present turnover is $12 million and average debtors of $250,000. If turnover increase by 30% and assuming the same credit terms on the new turnover, its debtors are likely to rise by 30% i.e. $750,000. So this $750,000 needs to be obtain from existing working capital resources or injection of share capital. If management ignores this point by “overstretching”, it will face the “Overtrading situation”, • By increased investment in fixed assets like land and building, machinery, etc and acquiring investments in a subsidiary or associated companies...
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...Charles Kindleberger: Anatomy of a Typical Financial Crisis January 03, 2009 We start with the model of the late Hyman Minsky, a man with a reputation among monetary theorists for being particularly pessimistic, even lugubrious, in his emphasis on the fragility of the monetary system and its propensity to disaster. Although Minsky was a monetary theorist rather than an economic historian, his model lends itself effectively to the interpretation of economic and financial history. Indeed, in its emphasis on the instability of the credit system, it is a lineal descendant of a model, set out with personal variations, by a host of classical economists including John Stuart Mill, Alfred Marshall, Knut Wicksell, and Irving Fisher. Like Fisher, Minsky attached great importance to the role of debt structures in causing financial difficulties, and especially debt contracted to leverage the acquisition of speculative assets for subsequent resale. According to Minsky, events leading up to a crisis start with a “displacement," some exogenous, outside shock to the macroeconomic system. The nature of this displacement varies from one speculative boom to another. It may be the outbreak or end of a war, a bumper harvest or crop failure, the widespread adoption of an invention with pervasive effects---canals, railroads, the automobile---some political event or surprising financial success, or debt conversion that precipitously lowers interest rates. An unanticipated...
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...Welcome to AIBF Financial Statement Analysis Training Asalamualikum! Khalid Zarif Current engagements Deputy Director & Academic Head of AIBF President of Afghanistan Association of Professional Accountants (AAPA) Bank Millie Afghan (BMA) Supervisory Board Member President of Afghan Social Researchers Association (ASRA) Work Experiences Business Unit Manger & adjunct Trainer, AUAF-PDI Technical Adviser, FinTRACA- Da Afghanistan Bank Custom Analyst- Ministry of Finance Official of Treasury Department- Ministry of Finance Education: Global MBA plus finalist of ACCA- Continuous BSc from Oxford Brookes University Certified Accounting Technician (CAT) 1. Purpose and format of the financial statements INTERPRETATI ON OF FINANCIAL STATEMENTS 2. Users of the financial Statements 3. Profitability Ratios & Interpretation 4. Liquidity Ratios & Interpretation 5. Gearing Ratios & Interpretation 6. Limitations of ratio analysis Accounting: Definition Is the process of Recording Classifying Summarizing Interpreting in journal in ledger and in Financial Statements financial information in order to make decisions Financial Statements Financial Statements present information about The financial position of an entity Its financial performance during accounting period Its cash flow Financial statements are 1. 2. 3. 4. 5. Statement of Financial Position Statement of Comprehensive Income/income...
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