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Managerial Finance - Essay Example

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The sharp decline in sales can be due to a fall in the volume of sales as well as due to the fall in the selling price of beers, soft drinks and spirits. The volume has fell due to…
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Managerial Finance
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Download file to see previous pages This has led to a fall in the prices of products sold by Titanic Plc. Consequently, due to a fall in volumetric sales and price of beer; Titanic Plc’s sales have plunged by 30%.
The above table shows that the margins of the company have also eroded due to fall in selling prices but no subsequent reduction in the costs. The gross margin fell from 46.4% in 2010 to 39.4% in 2012, which can be attributed to the fall in selling prices due to increase in competition in the industry. The operating profit margin and net margin fell drastically as the company could not control its distribution and administration expenses in the period of falling sales revenue.
The directors of the company feel that the company is experiencing financial distress. A company is in a financial distress when it faces liquidity issues and has difficulties in paying off its obligations when they are due. Financial distress increases when a company’s revenues move with the economy. Such cyclical companies are prone to fall in profitability due to an economic downturn.
The above table shows the liquidity ratios of the company. Company’s liquidity has improved from 2010 to 2012 as shown by an increase in the current ratio as well as the quick ratio of the company. Although the cash of the company fell from £10.6M from 2010 to £9.8M in 2012, the decrease was offset by an increase in inventory and receivables of the company. However, the current liabilities of the company fell drastically by 46% from £19.9M in 2010 to £10.8M in 2012 owing to lower trade payables and dividend payable. The ratios indicate that the company’s liquidity position is adequate.
The above table shows the asset efficiency ratios for Titanic Plc. Days in inventory has increased substantially from 89 days in 2010 to 122 days in 2012 indicating that the company’s inventory is piling up. This piling up of inventory is due to the fall in sales of the company. Titanic Plc has to take steps to ...Download file to see next pagesRead More
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