Can Hafeera Group Continues to Survive Based on the Current Performance Status - Case Study Example

International Assessment for Business Organizations Chosen Company: Hafeera Contracting Company, W. L. L Research Question/Title: Can Hafeera Group continues to survive based on the current performance status? Possible Sources: The possible sources include: Altman, Edward I. "Financial ratios, discriminant analysis and the prediction of corporate bankruptcy." The journal of finance 23.4 (2012): 589-609. Chadwell-Hatfield, Patricia, et al. "Financial criteria, capital budgeting techniques, and risk analysis of manufacturing firms." Journal of Applied Business Research (JABR) 13.1 (2011): 95-104. Megginson, William L., Robert C. Nash, and Matthias Randenborgh. "The financial and operating performance of newly privatized firms: An international empirical analysis." The Journal of Finance 49.2 (2012): 403-452. Introduction General Introduction Organizations within the contemporary environment continue to struggle in order to survive and grow amidst the increased competition. The reductions in the barriers to entrants have been a major factor contributing to increased competition (Altman 591). Classical firms continue to have significant problems in respect to competition despite the fact that they may be commanding high market share. As a result, such firms need to establish an evaluation and analysis into its performance in order to ascertain whether they can continue to survive or grow within the contemporary business environment. Hafeera Contracting Company is one such organization that has existed since 1968. The following is an analysis of Hafeera’s financial and overall performance in a bid to establish its survival and growth within the contemporary business environment. The main objective or question that this analysis aims at achieving or answering is, “Can Hafeera Group continues to survive based on the current performance status?” Overview of Hafeera Contracting Company Hafeera Contracting Company, an organization incorporated on 23rd March, 1983 after its formation in 1968, has been one of the best companies within the construction industry. Hafeera Contracting Company has its headquarters in Sitra, Kingdom of Bahrain. Since its formation and incorporation, Hafeera Contracting Company has been involved in undertaking specific projects that correspond to government industry, housing, road works, building, sewage and drainage, heavy civil construction, and construction of water supply networks amongst others. Indeed, Hafeera Contracting Company has been involved in many activities, which provide further room for both survival and growth within the construction industry. Findings The main question that this assessment and analysis aim at answering is “Can Hafeera Group continues to survive based on the current performance status?” In order to find the answers to this question, the assessment and analysis employed the use of financial data (Altman 591). The following are some of the findings from the assessments and analyses of financial data for Hafeera Contracting Company. The findings are categorized into the current financial information as well as the comparison of past financial information (2007 to 2010). It is important to understand a firm on the basis of its past performance whilst comparing with the present for the purposes of forecasting into the future. Latest Financial Performance Table 1: Latest Financial Performance 31 December 2011 Total Income $ 3,984,950 Total Expenses $ 3,059,556 Net Profit for the year $ 925,394 Total Equity $ 3,310,348 The above table shows or indicates the latest financial performance of information of the client. These data are useful in understanding the current performance of the firm hence provides a room or an opportunity of forecasting and making inferences about the future (Chadwell-Hatfield 101). The financial information provided in Table 1 can be used to generate various financial ratios, which may provide an understanding of the status and performance of Hafeera Contracting Company thus enhance in answering the research question. Different ratios can be obtained from the above table as illustrated below: Ratio Formula Value Net Profit Margin Net Income / Total Income (Revenue) 23.22% ROE Net Profit/Shareholder’s Equity 27.95% On the other hand, the following table provides financial analyses of the five years in order to conduct a comparison for the purposes of making sure that an effective and accurate evidence of survival within the industry. Financial Ratio Formula Value 2007 2008 2009 2010 Net Profit Margin Net Income / Total Income 0.04 0.09 0.71 0.66 Current Ratio Current Assets/Current Liabilities 1.56 0.86 1.85 1.90 ROA Net Profit/Total Assets 0.07 0.11 0.24 0.14 ROE Net Profit/Shareholder’s Equity 0.39 0.42 0.46 0.31 The above table shows the comparison of the different financial ratios from 2007 to 2010. These financial ratios are useful in conducting an analysis and assessment of the company based on the financial performance of the organization. The organization’s financial performance indicates the status of the firm (Chadwell-Hatfield 123). Therefore, it is important to conduct an in-depth analysis and assessments of the firm. The following are the charts of the ratios. Table 2: Net Profit Margin The following graph shows the net profit margin between 2007 and 2010 Table 3: Current ratio The following graph shows the current ratio between 2007 and 2010 Table 4: Return on Asset The following graph shows return on assets between 2007 and 2010 Table 5: Return on Equity The following graph shows the return on equity between 2007 and 2010 Analysis of the Findings Based on the findings, the latest data indicate that there has been a tremendous performance by the firm. The tremendous performance is indicated by the fact that there was a net profit of $ 925,394. According to this information, the net profit margin is 23.22% indicating that 23.22% of the sales revenue is likely to form the net income or profit after tax. This is a significant figure (Chadwell-Hatfield 101). An organization that is capable of maintaining a net margin of 23.22% has opportunities and ability to survive in a given market however strong the competition may be within a given industry. Based on the ratio analyses as displayed by Tables 2 to 5, there is no doubt that the firm continues to perform very well in terms of net profit margin, current ratio, return on assets, and return on equity. The net profit margin indicates the percentage of sales that would be converted to after tax income. Based on the above analyses of net profit margin, all the years indicate a positive growth within the net profit margin. Therefore, there is enough reason and evidence to confirm that based on the net profit margin as displayed by Table 2, Hafeera Contracting Company can continue to perform better, hence continues to exist. On the basis of current ratio (Table 3), it is obvious that Hafeera Contracting Company is able to pay short-term liabilities. The ability to pay the short term liabilities is measured on the basis of quick ratio (Megginson 419). In this analysis, the graphs indicate that Hafeera Contracting Company’s ability to pay for short term liabilities is high. Given the fact that the quick ratios are positive, though below 1, it is clear that Hafeera Contracting Company can continue to survive. Hafeera Contracting Company can therefore continue to survive through the increased competition within the contemporary world. There is no doubt therefore that Hafeera Contracting Company can survive the competition based on the quick ratio. The return on asset (ROA) and the return on equity (ROE) (Table 4 and 5) for Hafeera Contracting Company are also a proof that the company is in a position to survive and grow significantly through the contemporary competition (Altman 601). Return on Assets is a financial measure that indicates how profitability in regards to generation of revenue from the assets. ROA provides a measure of how much income an organization can derive from its assets. A high ROA means that an organization is able to derive high income from its assets hence creating a possibility of surviving and growing. From the above analysis, ROA increased between 2007 and 2009 after which it declined between 2009 and 2010. However, with the trends observe between 2007 and 2010, there is enough evidence that Hafeera Contracting Company will perform better in the future in respect to generating income from the assets (Megginson 410). On this basis therefore, Hafeera Contracting Company is likely to survive amidst high competition. On a different perspective, Return on Equity is another financial measure that provides an understanding on whether a given organization is able to survive and grow (Megginson 410). Return on Equity is a measure of rate of return that an organization obtains from the interests of the ownership (Equity). A higher ROE would indicate that an organization is receiving higher income from the equity (Altman 601). From the analysis, Hafeera Contracting Company experienced an increase in the ROE between 2007 and 2009 even though there was a decline in the same from 2009 to 2010. Even though there was a drop in ROE from 2009 to 2010, Hafeera Contracting Company will definitely perform well in the future hence its survival (Megginson 410). Therefore, there is no doubt that Hafeera Contracting Company through the assessments and analysis of the return on assets and equity will definitely survive through the competition. Conclusion Business enterprises in the contemporary environment struggle to survive and grow amidst high competition. The increased competition is attributed to adequate information about investments as well as the reductions in the barriers to entrants into different market structures. Different financial ratios are used in order to establish whether an organization is performing well or poorly and whether an organization has the possibility of surviving and growing. Some of the financial ratios used in this case include the net profit margin, current ration, return on equity, and return on assets amongst others. The above analysis and assessment has conducted an overview of the financial ratios for Hafeera Contracting Company. From the analysis and assessment of the financial analyses, it is evident that Hafeera Contracting Company can survive throughout the tough competition times within the construction industry. Bibliography Altman, Edward I. "Financial ratios, discriminant analysis and the prediction of corporate bankruptcy." The journal of finance 23.4 (2012): 589-609. Print. Chadwell-Hatfield, Patricia, et al. "Financial criteria, capital budgeting techniques, and risk analysis of manufacturing firms." Journal of Applied Business Research (JABR) 13.1 (2011): 95-104. Print. Megginson, William L., Robert C. Nash, and Matthias Randenborgh. "The financial and operating performance of newly privatized firms: An international empirical analysis." The Journal of Finance 49.2 (2012): 403-452. Print. Read More