LIQUIDITY
The liquidity position of the company is poor. The current ratio, quick ratio and the working capital of the company suggest working capital management problems in the company. The company does not have enough liquid assets to pay off current liabilities when these liabilities are to be paid off. The company has the current and quick ratio below 2 and 1 time respectively, which is a normal ratio. However, the company does not have sound working capital management policies, this could be because the company might not be receiving its receivables on time or it might be paying its suppliers too early. The company might also be facing the problem that the company is not able to convert the inventory into finished goods and sell the inventory, this leads to the company having poor liquidity position.
LEVERAGE
The total debt of the company has increased and this would in turn increase the cost of equity of the equity shareholders of the company. It shows that the company is financing its major operations with the borrowing of debt. The EBITDA over the interest expense ratio is also significantly declining and the leverage ratio is also increasing. This shows that the company is financing its assets with the debt of the company. The company is highly levered and this has increased the costs of financial distress and bankruptcy risks of the company. The company needs to lower its level of debt in the capital structure of the company.
EFFICIENCY/ACTIVITY
The efficiency ratios especially the day sales outstanding and days in inventory are increasing. These ratios show that the company is not receiving its receivables on time. Also, the company is taking a lot of time to convert its inventory into finished goods and then selling it to the customers. Apart from this, the company is also delaying its payments to the suppliers, this indicates that the company might not have enough funds or the company wants to improve its cash conversion cycle. However, this might deteriorate the relationships of the company with its suppliers. The cash turnover ratio and the asset turnover ratio of the company have also been declining since 2006. This shows that the company is not able to utilize its cash and assets efficiently to generate sales for the business.
PROFITABILITY
The profitability ratios of the company are declining over the period of 2006 to 2008. The gross profit margin and the net profit margin have both declined; however, there is a slight improvement in the operating profit margin ratio of the company. The net profit over sales has also declined which shows that the company is not generating enough profitability out of its sales over the years. The case is similar with the net profit over total assets ratio as it has significantly declined which shows inefficient usage of total assets by the management. Overall, the profitability of the company has declined. This shows that the expenses of the company are increasing at a much higher rate than the sales growth of the company.
CASH FLOW
The cash flow position of the company has weakened from 2007 to 2008. The company’s net cash variation has turned from negative to positive. The investing and the operating activities of the company are also showing negative net cash flow. The company is in a severe need of cash which it will have to raise by either issuing equity or raising more finance. However, looking at the other ratios of the company, especially the EBITDA over interest expense ratio, the bank would refuse to lend further borrowings to the company.
CONCLUSION
Apart from all the ratios discussed above, the growth ratios of the company are also deteriorating and the liabilities are increasing. It seems that the meeting held between Agroproquim and the business portfolio manager of Banco Occidental failed, as they did not agree to lend the company whose financial health had been deteriorating over the years. Although the references seem to be positive for the company but the figures talk against the company. The performance of the company seems to be poor and it is unlikely that Banco Occidental would lend its funds to Agroproquim for it to finance its growth needs................................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
Related Case Solutions & Analyses:
Neck & Neck: Leveraging the Club Neck Information
Google Inc.: Figuring Out How to Deal with China
Turnaround at the Veterans Health Administration (A)
Fundamental Dimensions of Strategy
Managing IT Resources in the Context of a Strategic Redeployment: Hydro-Quebec Case Study (B) – The Solution
Extracting Value from Corporate Venturing
Oak Industries Inc.
The Making of the Urban Entrepreneur
Chateau Qanafar: Starting and Operating a Lebanese Vineyard
Multistrada Agro International: Non-Market Strategy in Indonesia
