ACQuire Technology Solutions - Case Study Example

? Video Business Case Report Contents Contents 2 Executive Summary 3 Introduction 3 Discussion 4 Decision Criteria 4 Alternatives 5 Conclusion 8 Solutions 8 Implications and Implementation 9 Bibliography 9 Executive Summary acQuire Technologies faces many problems. The primary is the falling profitability, low liquidity ratio, high debt ratio, and lower market valuation. The company needs to look at solutions to improve its falling profitability. First it should look at improving the cash position of the business. To decrease the debt-equity ratio is to improve the profitability of the company. The company should look at improving the liquidity position. It can be done thorough reducing the operating cost. It can improve the valuation of the company by increasing the revenue of the company. acQuire can improve the profitability by reducing the operating cost and overhead. This will improve the production efficient of the company. It can decrease the debt equity ratio by in increasing the profitability. It will increase the cash position ultimately and lead to increase of liquidity position of the firm. The company can increase the current ratio by reducing the operating cost. It will ensure that the production efficiency of the company improves. This will have a direct impact on the profitability also. The board now wants to develop a sustainable strategy so that it can avid the repeat of the global financial crisis in 2008. For this the company should increase the core equity capital and lower its debt ratio. With more debt ratio the company will be in obligation to pay off their dues else it can go bankrupt. The company tries to lower its prices of the products and reinvest its profits back to the company instead of giving dividends to the shareholders. It will help the company in maintaining liquidity position so that they don’t have to face cash crunch when credit in the market dries up. Introduction acQuire Technology Solutions is an Australian-based company which develops and delivers Geoscientific Information Management System (GIMS) called “acQuire”. acQuire Technology solutions is facing many issues in its operation. The profitability of the company is decreasing from fiscal year 2012 to 2013. The forecasted profit of the company is also decreasing. The main reason for decrease in profitability is the increase in operating expenses. Hence the company is not being able to maintain its cost down. The current ratio of the company is increasing which shows that the company’s liquidity position is improving. Share price of the company has decreased from 2012 to 2013. This is because the net profit of the company is decreasing. The share profit of the company is also decreasing. There has been huge decrease in share profit from $ 792,551 to $ 319769. It is also predicted that the share profit of the company is also decreasing. The liquidity position of the firm is improving while the debt ratio of the company is decreasing. The company is using its cash balance to pay off its current liabilities. Foreign exchange gain of the company for the financial year 2013 was $ 26, 151 as compared to $ 93,960 for the financial year 2012. It indicates sufficient drop in profit for the company. Again it has been projected that the company will not earn any foreign exchange gains or losses. Discussion Decision Criteria acQuire Technologies Solution is facing a number of problem. The share of price of the company is decreasing because of loss of profitability. The current asset ratio of the company is increasing from 1.12 to 1.26. The company should look at improving the current ratio. Debt ratio of the company has decreased from 1.74 to 1.09. The ideal value of this debt ratio is 0.5. This shows that the company has high debt ratio. The company should look at decreasing the debt ratio. The profitability position of the company is decreasing. The net profit margin of the company has decreased from 11.3 % in FY 2012 to 4.8% in FY 2103. Again it is estimated that the ratio will further decrease by 2.9% in FY 2014. The company should look at improving the ratio1. The market valuation of the company is decreasing from 2012 to 2014. The company must try to improve the market valuation of the company. Alternatives Current ratio indicates the liquidity position of the company. A high current ratio of the company indicates the company is efficient in generating the current asset from the current liabilities acquired by the company. This shows that the company is effectively utilizing the capital borrowed and generating profits2. The company has to improve on its current ratio since it is below the industry standard of 2:1. There many ways to improve the current ratio. Increasing the profitability of the company is one way. The company should assess the prices on a regular basis to increase its profitability. As the operating cost of the company is increasing, the company should look to adjust the prices of its products to stay in the profit zone. Another way is to sell-off the unproductive assets. Cash level of the company will improve by selling off its unused fixed assets. To improve the conversion cycle, a regular follow up with the debtors is essential. By paying off the current liabilities the company can also improve the current ratio. The company should try to pay off its current liabilities as early as possible to improve its current ratio. Among the many alternatives reducing the operating cost is the best way to improve the current ratio. It will ensure that the production efficiency of the company improves. This will have a direct impact on the profitability also. There are many ways of decreasing the debt ratio. The company should improve the profitable sales. By increasing the sales volume without increasing the overhead expenses, will increase the bottom line. It will give extra cash to pay off the debt. The companies should look at reducing the overhead. By effectively reducing the accounts payable per months the company will effectively increase the equity3. Inventory is one of the biggest entities where the cash gets hold up. By efficiently using the inventory the company will be able to build up on its cash position to pay off its debt. The company can also go for selling off some of its assets to get cash to pay off its debt. The company can also look for restricting the debt. The company can easily reduce the amount to be paid in each instalment which will increase the cash balance to pay off its liabilities. Among the alternatives, the best way is to increase the profitability, since it will increase the cash position ultimately and lead to increase of liquidity position of the firm4. There are many ways to improving profitability. The company can try to reduce its operating expenses. At the same time the company should look at reducing the overhead. The company should take a close look at the little expenditures which adds up faster to eat up extra cash. There are many alternatives of improving the profitability margins. The company should focus on selling products and services with highest gross margin5. By doing this the company will be able to get highest return on the money invested. This will effectively make more cash available to the company and improve sits liquidity position with that the company can acquire new productive assets to further improve the profitability figure6. There are many ways to improving the valuation of the company. The company should look at increasing the profits and cash flow of the company. With increase in profitability the cash flow of the company will improve. This will automatically increase the Valuation. Another way to improve the valuation is to increase the revenue. With rise of revenue the company will increase profitability. The total revenue includes License, Services and Maintenance and other incomes. This revenue has decreased from $ 21,625, 521 to $ 20,309,223. It is expected to increase to $ 21, 859, 9698. The company must increase this revenue by increasing is each part. Another way to improve the valuation is to increase the Earnings before Tax and depreciation7. This figure has decreased from $ 4,435,602 in FY 2012 to $ 1,380,381 in FY 2013. The company should try to increase it by reducing the operating expenses. This will in effect improve the EBDT of the company8. The company can also increase the total net tangible assets of the company. The company should look at improving the productive assets which will improve the profitability of the company. The board now wants to develop a sustainable strategy so that it can avid the repeat of the global financial crisis in 2008. For this the company should increase the core equity capital and lower its debt ratio. With more debt ratio the company will be in obligation to pay off their dues else it can go bankrupt9. The company tries to lower its prices of the products and reinvest its profits back to the company instead of giving dividends to the shareholders. It will help the company in maintaining liquidity position so that they don’t have to face cash crunch when credit in the market dries up. The company should look to increase its operational efficiency and thus reduce the operating cost of the company. acQuire Technologies should try to improve the profit margin as much as it can so that the cash position of the company improves10. Conclusion Solutions The company needs to look at solutions to improve its falling profitability. First it should look at improving the cash position of the business. To decrease the debt-equity ratio is to improve the profitability of the company. The company should look at improving the liquidity position. It can be done thorough reducing the operating cost. It can improve the valuation of the company by increasing the revenue of the company. Implications and Implementation acQuire can improve the profitability by reducing the operating cost and overhead. This will improve the production efficient of the company. This will effectively make more cash available to the company and improve sits liquidity position with that the company can acquire new productive assets to further improve the profitability figure. It can decrease the debt equity ratio by in increasing the profitability. It will increase the cash position ultimately and lead to increase of liquidity position of the firm. The company can increase the current ratio by reducing the operating cost. It will ensure that the production efficiency of the company improves. This will have a direct impact on the profitability also. Bibliography Albrecht, W. Steve, Earl K. 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London: Prentice-Hall, 2002. Weygandt, Jerry J., Donald E. Kieso and Paul D. Kimmel. Financial Accounting. New Jersey: John Wiley & Sons. Read More