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Low Fell Engineering Ltd - Assignment Example

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In the paper “Low Fell Engineering Ltd” the author will examine the profitability of Low Fell Engineering in the light of the information obtained from their Income statement and balance sheets. The ratios themselves do not provide a way to properly analyze the company itself…
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Low Fell Engineering Ltd
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Download file to see previous pages The company has outperformed the industry with respect to return on equity as it might be operating efficiently as compared to other companies.
The current ratio measures a company’s ability to pay short term obligations of its creditors when they are due. Low Fell Engineering has a slightly better current ratio than the company thus it gives a good impression to the investors who are willing to invest in the stock of the company.
The acid test ratio is similar to the current ratio but it does not incorporate the Cost of inventory or stocks since it considers them to be the least liquid. The acid test ration of Low Fell Engineering is also better than the industry standards signifying that they have a strong ability to meet their short term dues.
The stock turnover of the company is below the benchmark level and it has not been able to turn over its inventory as well as other companies which can be an overwhelming concern since it can increase the cost of inventory.
The company needs to be concerned about its low stock turnover which is increasing their cost of inventory and thus reducing their gross profit margin. To improve the turnover, they need to optimize their supply chain, make the production process lean and build a strong relationship with the suppliers or vendors. A good supplier enables to deliver stock in a timely and low-cost manner which can minimize the cost of sales (Bierley, 2008).
In a finance lease, the risk and ownership of the asset are transferred to the lessee (Pietersz, 2005). Therefore, at the end of the period, the lessee can sell the asset at the scrap Cost. Thus, in the case of a finance lease, the Cost of the machinery will be
Since the case does not explicitly mention that the lease is operating of finance therefore if we assume that it is a finance lease then it will be the most feasible option.  ...Download file to see next pagesRead More
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