Finance Management Essay Example | Topics and Well Written Essays - 1500 words

Finance Management - Essay Example The net profit ratio shows that CLP Ltd was able to retain about 27% of the total revenue after accounting for various costs and expenses in the year 2005. It also suggest that the company loses about 73% of its sales revenue on account of various production, distribution, selling, administrative, operating, and other expenses. This ratio has decreased as compared to the previous year by about 5% even though the revenue increased in the current years. This suggests that the company is confronting with increasing expenses to carry out its activities. Riahi-Belkaoui says that the return on capital employed ratio "indicates how efficiently the capital supplied by the common stockholders was employed within the firm" (11). CLP Ltd utilized the funds provided by shareholders to generate a profit of about only 3% in 2005, which has tumbled from 18.24% in 2004. The analysis of return on assets ratio shows that in 2005, the company utilized its assets towards the generation of profit in a slightly better manner than the year 2004. Hence, profitability analysis suggests that the company is a fairly profitable company. The liquidity analysis shows t... The current ratio for CLP Ltd reveals that the company owns HK$0.65 of current assets to pay off HK$1 of its liabilities in 2005. This indicates a severe shortage of liquid assets in the company to the extent that it cannot discharge its short-term debts out of even all of its current assets. In the current year, this has declined by about 10%, which is not a good sign for its liquidity position. The quick ratio also suggests a falling trend in the company's ability to pay off its short-term liabilities and day-to-day expenses. Efficiency 2005 2004 Receivable Turnover 52 days 42 days Cash Dividend Coverage Ratio 1.75 1.89 The receivable turnover ratio exhibits that in the year 2005, the company's management converted its receivable into cash in 52 days, which has dramatically risen as compared to the previous year. This shows that the company is becoming inefficient in collecting money from its debtors on time. The cash dividend coverage ratio shows how well the company is able to pay off dividends to its shareholders out of available cash funds. An analysis of this ratio for the company suggests that although the company's cash balance is sufficient enough in 2005 to pay the dividends, yet the ratio has declined from that of the year 2004 due to the firm's attempt to pay a higher dividend in the current year out of almost the same operating cash balance. Leverage 2005 2004 Debt Ratio 28.84% 23.23% Gearing Ratio 58.59% 42.47% Riahi-Belkaoui illuminates that the leverage ratios are "used to assess the long-term solvency risk of the firm" (10). The debt ratio reveals that in 2004, about 23% of the company's assets were financed with the