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Identify areas in which you think could make improvements

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Question - Smart Eletro plc, a public listed company, is a major supplier of electrical components to the automotive industry. Company's key accounting ratios are set out in the following table, together with industry averages:

Return on capital employed

Smart Electro plc: 21.4%

Industry Averages :16.1%

Gross profit margin

Smart Electro plc: 11.5%

Industry Averages: 13.0%

Net profit margin

Smart Electro plc: 9.8%

Industry Averages: 11.0%

Current ratio

Smart Electro plc: 1.6

Industry Averages: 1.4

Inventories turnover

Smart Electro plc: 12

Industry Averages: 6

Trade receivables collection period

Smart Electro plc: 61 days

Industry Averages: 65 days

Trade payables payment period

Smart Electro plc: 43 days

Industry Averages: 105 days

Gearing

Smart Electro plc: 68.4%

Industry Averages: 37.2%

a) You are working in this company and the Finance Director asked you to the Board of Directors. a brief of to the board of directors of Smart Eletro plc. comparing the ratios for the company with the industry averages. Identify any areas in which you think they could make improvements.

b) Smart Eletro plc. has operations in the United Kingdom, Europe and the United States. The company has been looking for some time to expand its operations into the Far East and has now formulated plans for the building of two major new factories in China. Explain in detail the best possible internal and external financing options available to the company to expand its operations taking into account the company's gearing and profitability position.

Reference no: EM132876350

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