Analyze the major issues facing the company

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Reference no: EM131793497

Case Study: General Machinery Ltd

General Machinery manufactures computer numerical control (CNC) equipment for its customers who use the equipment in the manufacture of electronic circuit boards. Ratios have been calculated from annual reports for the last five years and are shown in Table 7.19. The Statement of Cash Flows is shown in Table 7.20.

TABLE 7.19Ratios.

 

2014

2013

2012

2011

2010

ROI

5.0%

3.2%

3.6%

6.2%

5.8%

ROCE

9.2%

7.1%

6.2%

7.6%

6.4%

Operating margin

16.8%

13.9%

12.6%

15.7%

14.1%

Gross margin

70.0%

71.0%

72.0%

74.0%

75.0%

Overhead to sales

53.2%

57.1%

59.4%

58.3%

60.9%

Sales growth

11.4%

9.4%

6.7%

9.1%


Working capital

198%

360%

340%

368%

326%

Acid test

135%

287%

270%

275%

243%

Gearing

42.0%

40.5%

38.6%

36.5%

37.4%

Interest cover

182%

162%

202%

376%

517%

Asset turnover

48%

46%

44%

44%

41%

Days' sales outstanding

60

63

68

70

73

Inventory turn

3.3

3.1

2.8

2.2

2.3

Days' purchases outstanding

78

88

102

105

111

Dividend per share

$0.036

$0.027

$0.025

$0.036

$0.036

Dividend payout ratio

48.4%

57.9%

49.0%

41.4%

45.7%

Dividend yield

3.0%

2.5%

2.5%

4.5%

5.6%

EPS

$0.075

$0.047

$0.052

$0.088

$0.080

P/E ratio

16.0

23.4

19.3

9.1

8.2

General Machinery's Statement of Cash Flows is also shown for the last few years (Table 7.20).

TABLE 7.20Statement of Cash Flows.

 

2014

2013

2012

2011

Cash flow from operating activities





Cash receipts

772,000

700,000

635,000

595,000

Cash payments

-628,000

-601,000

-537,200

-503,000

Interest paid

-72,000

-60,000

-40,000

-25,000

Income tax paid

-17,700

-11,100

-12,240

-20,700

Net cash from operating activities

54,300

27,900

45,560

46,300

Cash flow from investing activities





Payments for property, plant & equipment

-200,000

-50,000

-50,000

-

Net cash used in investing activities

-200,000

-50,000

-50,000

-

Cash flow from financing activities





Proceeds from borrowings

50,000

50,000

50,000

-

Dividends paid

-20,000

-15,000

-14,000

-20,000

Net cash from/used in financing activities

30,000

35,000

36,000

-20,000

Net increase/(decrease) in cash

-115,700

12,900

31,560

26,300

Cash at beginning of year

135,700

122,800

91,240

64,940

Cash at end of year

20,000

135,700

122,800

91,240

1. Discuss the major issues facing the company.

2. Recommend what actions the company should take to improve its overall performance, addressing each of profitability, liquidity, gearing, activity, and shareholder return measures.

3. In what way does the Statement of Cash Flows help you to interpret the ratios and financial performance of the company?

Reference no: EM131793497

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