- An analytical review of the performance of the company.
- An assessment of the capability of the company.
a. Performing an analytical review of the company’s performance using historical information (2017 & 2016) and forecast information (2018)
Ratio analysis tool provides assistance in evaluating financial performance of the company from several aspects such as profitability, liquidity, solvency and efficiency. By taking into account such tool firm can assess whether performance is improved or deteriorated over the time frame. Case scenario presents that demand for the products which are offering by Biotechnology Limited increasing continually. However, currently financial position of Biotechnology Ltd is not good. Thus, to assess the performance in relation to the near future ratio analysis tool has been applied.
Ratio analysis of Biotechnology ltd for the period of 2016, 2017 and 2018
Profitability ratio analysis
Outcome of ratio analysis shows that GP margin of Biotechnology Ltd has increased over the time frame from 49.9% to 51.5%. On the other side, during the concerned accounting year’s business unit has failed to attain positive net margin, returns on equity and assets. Demand for the company’s products or services are good but due to the increasing expenses company was failed to attain positive results. From evaluation, it has found that now Biotechnology ltd is offering its products or services to only one customer such as Delux. Thus, it is also another main reason behind lower growth in revenue and high expenses. Moreover, company gets high economies of scale when it produces or services at large level.
Liquidity ratio analysis
Referring current as well as quick ratio pertaining to the year 2016 and 2017 it can be presented that company was not highly capable in relation meeting obligations. Financial statement of the forecasted period shows that current and quick ratio accounts for 1.92 & 1.91 respectively. This clearly presents that liquidity position of Biotechnology Ltd will be good in the forecasted period. Case scenario clearly presents that in 2018 business unit will meet its financial needs through issuing equity shares. This is the reason due to which liquidity position of Biotechnology Ltd will be higher in the year of 2018.
By doing assessment of case situation and financial statements, it has assessed in the accounting year 2016 and 2017 company had financed all of its operations through equity sources rather than debt. Moreover, capital structure can said to be optimal when it maintains ideal ratio such as .5:1. On the basis of this, firm should take resort of 1 debt instrument or source in against to 2 equities. Moreover, high equities make the company insolvent so it should consider both the sources while raising funds. In addition to this, debt sources also offer benefits to Biotechnology ltd under tax brackets. Thus, such aspect is considered as negative aspect from the perspective of undesirable solvency position.
In addition to this, results of ratio analysis show that inventory of the company is selling and replacing its stock more frequently. However, receivable period of the company decreased over the time frame. Further, as per the payment period now company needs to make payment earlier as compared to the prior times. Thus, it can be presented that a working capital management strategy undertaken by Biotechnology ltd is not highly good.
Market prospects ratio
Referring the outcome of ratio analysis, it can be depicted that due to the generation of loss business unit failed to provide stakeholders with suitable returns. Given case scenario clearly exhibits that share prices of Biotechnology ltd has been declined from $2 to $0.20 at the end of 2017. This is one of the main aspects which in turn place negative impact on the brand image and market share of firm.
In this category, positive aspect is that Biotechnology Ltd has built and maintained investor’s confidence to a great extent. This can be seen be supported with the recent market capitalization aspect such as $20 million’s at the end of 2017. Thus, business unit has opportunity to make improvement in the market prospect aspects by undertaking sound strategic framework.
b. In accordance with the results of the analytical review assessing the ability company in relation to continuing a going concern in the future
Going concern concept entails that, business entity will continue its operations in the near future. In other words, such concept presents that owner of the firm will not liquidate or to be forced in relation to discontinuing operations due to any reason (The Going Concept, 2018). By doing ratio analysis, it has found that financial position of Biotechnology Ltd under different categories such profitability, solvency etc is not good. As per the current and forecasted position company is less able to carry out its operations in the near future. However, by making changes in the current strategic and policy framework Biotechnology can make improvement in the financial position. Due to the high level of indirect expense level business unit failed to generate high profit margin during the 2016, 2017 and forecasted period 2018. Hence, by employing the technique of budgetary control Biotechnology ltd would become able to monitor expense level and thereby exerts control on unnecessary spending. In addition to this, by laying emphasis on finding suitable and alternative ways of doing activities firm can reduce the level of expenses and thereby enhances profit margin. Further, for making improvement in negative profitability aspect emphasis need to be placed by the company on offering innovative products or services to the customers. Moreover, now Biotechnology Ltd is facing issue in enhancing customer base due to the new product development by the competitors. Hence, it can be depicted that without making changes in the current expense level and policies firm would not able to continue its operations.