Question
The company is dealing with a number of operational challenges, according to the analysis of the financial statements: Issues with liquidity: The company's working capital
The company is dealing with a number of operational challenges, according to the analysis of the financial statements: Issues with liquidity: The company's working capital is low, despite the current ratio and quick ratio being above the industry average, suggesting that it would have trouble satisfying short-term obligations. Furthermore, the company's average collection duration is lengthy, which implies it is taking longer to collect its receivables, which reduces its cash flow. Assets not being used effectively: The company's inventory turnover is minimal, suggesting ineffective inventory management. The company is taking longer to turn its assets into cash as seen by the high average operational cycle and selling duration.
Financial leverage: The company has a high debt-to-equity ratio, which shows that it has a lot of debt in comparison to equity. The corporation may have trouble fulfilling its interest obligations because the times interest earned ratio is low. Profitability decline: As compared to 2020, the company's net profit margin, return on total assets, return on equity, and profits per share all fell, suggesting lower profitability than previously. Uncertain dividend payments: In 2021, the company's dividend payout ratio and dividend yield both grew considerably, suggesting a potential difficulty in maintaining regular dividend payments. Common stock repurchases: The company's decision to do so in 2020 rather than 2021 may be a sign that it is having financial difficulties and is unable to afford to buy back its own shares. Overall, the company's operational problems raise concerns that it could be unable to produce regular earnings, fulfil immediate obligations, and effectively manage its assets.
In light of your response above, what two (or more) specific actionable items could the company do to improve its situation? Be specific in your response, justifying your statements.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started