This company, from 2013 to 2018, has been unable to generate any funds from its operations.
In total its operating expenses were three times the sales revenues. The company only employs 54 people, yet their combined wages and salaries make up around half of its operating costs, over twenty million pounds over this period.
So where did the company get its cash from in order to carry on trading? It has all come from the issue of new shares.
What did it do with it? Just under four million was invested long term, the rest, thirty million, was absorbed in operating costs, with two million going to increase the cash balances.
The company’s reports are optimistic about the future and the auditors agree that it is a going concern.Add to cartRead More
CASTLETON 2015 -2019
By and large everything is improving. Sales growth is largely due to acquisitions.
Operating expenses are reducing as a percentage of sales, so funds generated are increasing.
Control of circulating capital is improving, although when expressed in days, the figures are unusual.
In 2015 and 2016 investments exceeded the funds available and the company financed them with debt. In the later years is has funded investments with self-generated funds and is beginning to pay off debt.
The ratios look satisfactory. As mentioned the working capital ones are unusual; it would be necessary to see if they are in line with its competitors.
The company is about to begin paying dividends.
Its market-place is changing, however, with more clients wanting cloud services. How will Castleton adapt to these changes? In my opinion, probably quite well.Add to cartRead More
No financial statements for the years before 2018 were to be found on the web. For 2018, the picture painted by the numbers is an unhappy one. Sales revenues are down and operating expenses are up, in fact they take up 99% of the sales revenues. In 2018 the company had to pay its suppliers more quickly, reducing available funds even more. In both years it continued to invest, financing these investments by borrowing. After this there was no money left.
The ratios are affected by the write-down of goodwill, which reduced the operating net assets and the equity. Consequently any ratios in which they are involved show spurious improvements.
Overall, the company is in dire financial circumstances.
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Mothercare has been reorganising since 2015 and spending a net 77,000 pounds on it. However, this has not resulted in improved cash generation. On the contrary, the outflows in 2018 and 2019 are the worst to occur over the five years. the performance ratios could hardly be worse.Those for accounts receivable and payable indicate that, in 2019, the company had been concentrating on these to raise cash. The company has ploughed all the cash it could create, and borrow, back into the firm. No dividends were paid. Now that goodwill has been eliminated the ratios involving return on operating assets are affected, the 2019 ones are not really relevant.
That the company is now in administration is not surprising.Add to cartRead More
Bonmarche’s cash flows and ratios reveal that, in 2018, the amounts that it was spending on investments, and on dividends, exceeded the funds that it was generating from its operations. The difference was financed by reducing its cash balances. If this is to continue in 2019, the funds that it generates will have to increase, either by increasing sales revenue or by decreasing costs. In 2018 its performance for its shareholders was poor; the dividend was not even covered. However, it had a low debt ratio and good cover for its interest payments. It was having a tough time but, from the figures, it looked safe; a going concern, and its auditors thought so too. In 2019, however, everything changed, the company collapsed, and it is now in administration.
The lesson for us? Figure analysis needs augmenting with knowledge of the company’s trading environment; they are not enough on their own.
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There was little growth in sales revenue over the period, partly explained by the closure of retail outlets. Operations used up 89% of sales revenue in total, and financial charges used up a further 5%, mainly due to the generous dividends paid out to shareholders. Of the funds left available, investing in the future took up 86% and the remainder was principally used to reduce debt.
The company is in good shape, but it needs to improve its profitability. Just a ½% reduction in operating expenses with a ½% increase in sales revenue, would increase funds generated by operations by £1,400,000, a transforming figure.Add to cartRead More
All the performance ratios are poor and in decline. Operating the company used up 89% of its sales revenue and financial charges used up another 5%, meaning that only 6% was left for it to invest in the company’s future. Working capital ratios are almost constant and are satisfactory. From a risk point of view its debt ration is constant and its dividend cover is satisfactory. The shareholders, although getting good dividends, looks poor. The return on shareholders’ funds is poor and the profits do not cover the dividend.
Note that profits have been calculated AFTER deducting the large adjustment figures that the company had excluded, because Thomas Cook was criticised recently by a Parliamentary committee for excluding such adjustments.Add to cartRead More
Check out Thomas Cook’s progress under its Chief Executive Officers since 2008.Examine their cash flows and ratios
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This is an easy case.
Joan has been teaching driving for many years. Until recently she has been content to just produce the information necessary for her to pay her taxes. Now she would like to see a full set of accounts and she has asked you to produce them. she values your opinions highly and is hoping for some suggestions as to how to improve her business’s performance.Select optionsRead More
This case is a bit more challenging.
Now that Julia’s business has been trading for a year, she wants you to produce its financial statements and she is eager to hear what advice you can give her.
You are provided with:
Blank financial statements:
Profit and Loss account
Cash flow statement.
Then you can calculate some ratios to see how well the business is performing.
What advice would you give to Julia?Answers are provided, of course.
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This is an easy case.
In 1502 Carlo finally achieved his life’s ambition and bought a beautiful ship with which he intended to travel to India, following the route discovered by Vasco da Gama, where he would acquire spices in exchange for the silver and trinkets that he would be taking with him. These spices would fetch good money on his return.
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A legacy from a relative, plus support from her bank, had made it possible for Dede to buy an hotel in Torquay. It was a modest hotel, with just ten rooms, each with ensuite facilities, mini bars and coffee and tea making facilities,. The hotel did not have a dining room because it was surrounded by many good restaurants. It is the end of her first year and she is waiting for you to produce her financial statements. As usual, working papers have been prepared for you.Select optionsRead More
Kathy is the tenant landlady of the Foresters public house, where Richard often met Andrew to discuss his business plan (In Understand Accounting). She has formed a limited liability company and has negotiated a tenancy agreement with the brewers. The Foresters has just finished its first trading year and Kathy is keen to know how well her business has done. She would also like you to advise her as to how she could improve that performance. So it’s over to you to prepare the financial statements and some ratios and then comment on them. Working papers have been prepared for you and answers are available, of course.Select optionsRead More
Jean and John have been running a small bookshop in their village for three years. It’s a small affair but they are happy with it. Their accountant had advised them to form a limited company with each of them holding equal numbers of shares. The bookshop is open for 300 days a year and, on average, sells its books at £15 each. It is open for six hours a day and averages 5 potential customers an hour. They did not pay themselves salaries, relying instead on their dividends.Select optionsRead More
William and Patricia, brother and sister, had grown up with boats all their lives; their parents owned a six berth cruiser, and every summer holiday had been spent on the Norfolk Broads – waterways that extended for hundreds of miles. So it is not surprising that their ambition was to own their own boating business.Select optionsRead More