A Report Of Pace Leisurewear Ltd Finance Essay

A Report Of Pace Leisurewear Ltd Finance EssayPace Leisurewear Ltd is a manufacturer of casual wear and designer leisure turn party. Jill Dempsey and Mike Greaves are two co-founder of Pace Leisurewear Ltd. Lots of fresh experience in similar business and in the altogether ideas for developing a new range of vestments for young people motivate Jill and Mike to form such business to attracts younger and higher income market. Under guidance of Jane Barker, who is experienced designer, community had lodge inn lots of efforts and spend lots of money to recruit young and talented design team. As expected design team produced range of clothes and welcomed by enthusiasm buyers. With the help of marketing team lead by Jill Dempsey, the sales was growing and consecrates had reached their highest level ever. Recession period Pace Leisurewear Ltd started trading receivable to average sales. After economy coming out of recession, societys sales started growing with new exports markets in France and Switzerland. Jill and Mike were very delighted when they received a order from Arena, which could be very important for companies growth over next few grades in leisurewear business. Jilland Mike invested all their life time savings as well as taken out large mortgages on their houses to invest in companies business. Major contribution added by Keeble Estates Ltd, owned by Keeble brother, David and John Keeble. The hop on of directors of Pace Leisurewear Ltd are Jill Dempsey, Mike Geaves, Jane Berker, David Keeble and John Keeble.Difficulties faced by Pace Leisurewear Ltd.The main problem which is company facing is reduction in bank overdraft by half over next six months. Even draft accounts details received from the auditors shows receipts has more than simulacrumd. Surprisingly company facing cash blank space is so pithysighted. Company invested a lots on additional plant and subsequently selling old machines company didnt manage additional expenses includes 2.8 million for depreciation. It is already clear from Keeble brothers that addition investment is not possible.Board directors not have financial expertise and business had crossed the overdraft limit on several occasions. Because of poor cash situation company need large amount of money to successfully execute new order from Arena and override Pace Leisurewears liquid problem.Financing proportion analysis in the tabular format with relevant formulas pull inability symmetry symmetryFormulasYear( 2008)Year( 2009)Return on capital employed (ROCE)Profit before interest and tax x 100%Capital Employed2100 x100%10474=20 %4618 x100%15600=29.7%Return on Equity(ROE)RatioProfit after tax x 100%Share holder equityFormulas1248 x100%6874=18.1%Year( 2008)2926 x100%9000=32.7%Year( 2009)Gross Profit shoreGross Profit x100%Sales6510 x100%14006=46.5%10792 x 100%22410=48.15%Net Profit MarginNet Profit bf interest tax x 100%Sales2100 x100%14006=14.99%4618 x10022410=20.6%Efficiency Ratio RatioFor mulasYear( 2008)Year (2009)Stock Turnover in ageStock held x365Cost of sales2418 x3657496=117.73 geezerhood5820 x36511618=182.84 dayDebtors Turnover in long timeTrade Debtors x365sales1614 x36514006=42 days3744 x36522410=61daysCreditors Turnover in daysTrade creditor x365Purchases1214 x3657496=59days2612 x36511618=82 daysLiquidity Ratio RatioFormulasYear (2008)Year (2009)Current RatioCurrent Assets =Current Liabilities43562482=1.8199748844=1.121 active (acid probe) balanceCurrent assets StockCurrent Liabilities4356 24182482=0.819974-58208844=0.51Gearing RatioRatioFormulasYear (2008)Year (2009)Gearing RatioFixed avocation Capital x100%Fixed interest capital + equity3600 x100%10474=34.4%6600 x100%15600=42.3%Financing position and performance of Pace Leisurewear LtdProfitability RatioEvery company is looking for its profitability. Ratio analysis is compute with the help of different types of formulas. Ratio analysis help business to provide financial statements. Concerned wi th how much the company owes in relation to its size. It is improving its situation. Ratio gives very clear view of the financial stability rather than companies individual mathematical figures. Profitability ratio is most frequently apply tools in financial ratio analysis. It shows companys performance and stability. Profitability ratio can be divided by margins and returns. All type of ratios can shows companies situation in the market, but ratios can not give any solution for any problem. Using companys profit and loss we can calculate its profitability. Here we exit address profitability ratio for Pace Leisurewear Ltd.Return on Capital Employed ROCE goes higher the companys profitability will increase. In social class 2008 ROCE was around 20% and in year 2009 it increased to 29%. Even in year 2009 Profit before tax and interest was higher as compare to year 2008,but company also increase fixed assets and veritable assets. That was the reason companys ROCE is increased by 9 % only.Return on Equity The amount of net income returned as a percentage of shareholders equity. It will help for comparing the profitability of two companies, which are in the same industry. ROE for the year 2008 is 18.1% and in year 2009 was 32.7%,that means is double than 2008.Equity shows the total investment of the company. Higher the ROE goes shareholder get higher return. Dividend increased almost double as well as net profit after tax also increased, it means company is getting good return from shareholders equity.Gross Profit Margin Gross profit margin parent the percentage of amount remaining after paying cost of sales. Companys total sales minus its cost of goods sold, divided by the total sales, which is represent in percentage. The higher percentage means more the company retain on each sales to its other costs. Gross profit margin for year 2008 was 46.5% and in year 2009 its increased to 48.15%. Because of cost of sales increased by 55% between last two years, it eff ected on coarse profit margin. Companys gross profit increased by 65% over sales which is increased by 60%.Net Profit Margin Net margin will vary from company to company and most companies will makeup their net margin both quarterly. it shows business net profitability.Net profit margin for 2008 was 14.99% and in year 2009 it increased by 20.6%.Net Profit after tax increased by around 134.5% over the same period. Increase in net profit after tax is a very good news for companys future.Efficiency RatioCompany should invest in assets to run its operations. Efficiency ratio calculate how in effect company use its assets. It needs to be managed carefully. A good system of credit control is essential to any organisation.Stock Turnover ratio It shows the turn of days on average money is fixed up in stocks. Stock disturbance shows how quickly goods move through the business. Profits must be increased if the rate of stock perturbation can be increased. Stock is the part of working capit al. Its important for working capital to as early as possible convert stock into cash to save from liquidity problem. In year 2008 stock turnover was 117.73 days and in year 2009 it increased to 182.84 days. boastful turnover in days is not good for business because funds are very hard to use somewhere and funds got freeze with stock.Debtors turnover ratio ( days )It will shows, how efficiently business can collecting its debts and how quickly company can solve debt problem. Short period of debt is not a big harm to company but the longer debt can effect on business badly. In year 2008 debtor turnover was 42 days and in year 2009 it increased to 61 days. It means longer time money will be stuck with debtors.Creditors turnover ratio (days) This ratio shows ,how many days it takes to paying its debts. Cash must be retained within the organisation for longer period. Creditor turnover days must be always greater than debtors turnover days. Business holding creditors money for longer pe riod so longer days with creditors turnover is good for companys business. In year 2008 creditors turnover in 59 days and in year 2009 it increased to 82 days. It seems to be good compare to debtors turnover days.Liquidity Ratio Liquidity ratio shows companys ability to fall short term creditors out of its total cash. Current ratio must be in excess of 1. If it is greater than 1,it means ,its fully acceptable. thither are two liquidity ration which is very simple to use and very important as well. These ration are Current ratio and acid test ratio. It can pay its suppliers by having enough working capital.According to balance sheet for 2008,current assets are carry on debtors, stock, cash and other debtors. Current liabilities are trade creditors, taxation, dividends, other creditors and bank overdrafts.Current RatioCurrent assets in year 2008 calculated as 4356k and in year 2009 is calculated as 9974k and current liabilities calculated for year 2008 as 2482k and in year 2009 is c alculated as 8844k.As if we calculated current ratio should be 21,it means business has sufficient current assets to pay current liabilities. Current ratio in year 2008 is 1.81,it means company has sufficient liquidity to pay its debts, as year 2009 current ratio shows 112.Its increase shows company can pay its short term debts.Quick (acid-test) Ratio Acid-test ratio does not includes value of stock so this ratio can calculate liquidity more accurate than current ratio. Fast stock turnover companys can keep acid test ratio comfortably less than 1.To calculate acid test ratio we will take out stock value from current assets. In 2008 acid test ratio was 0.81,which seems to be not bad. Next if we calculate for year 2009 the acid test ratio shows to 0.51which seems to be very unhealthy. Stock calculated in year 2008 was 2418k and in year 2009 is 5820k,it means company keeps more than doubled its stock. Acid test ratio for current year is showing company is in big dread with its liquid ity.Gearing RatioGearing ratio calculate of financial leverage which demonstrate the percentage to which business activities are funded by owner fund versus creditor funds. There is no limitation to how much gearing ratio responsible to be. Company having less than 50% gearing ratio can be specify as a low adapt. Also if company having more than 50% gearing ratio can be specify as a high geared ratio. In year 2008 gearing ratio was 34.4% and in year 2009 gearing ratio shows 42.3%.Comparing with this two years, in 2009 company is higher geared than in year 2008.Company top up loan amount by 6600k which is approximately 83%.Company have to pay more interest because of its higher loan and it can be effected companys capital, which they will end up in paying dividends.Last two year ratio clearly shows that company is having difficulty with liquidity in coming years. Top of that bank is going to reduce overdraft by half percent in next six months and this is not affordable by company to fulfil new order which is come from Arena, Pace Leisurewear Ltd have to complete this order to stay in the leisurewear market.Plan of Action After writing this report for Pace Leisurewear Ltd ,there are few points, which need to be look into, as follows 1.One positive point is company is highly profitable, but it is very difficult to change potential investors to invest in company because its gearing ration is high and facing a liquidity problem .Some investor can invest with risks in convince for future high returns.2. There is chance to small investment from suppliers and customers after explaining companys future plan and current orders proposal.3.Try to convert stock in cash for short term. Efficiency ratio shows large number of stock turnover effecting companys cash.4.Pace Leisurewear Ltd need to be appoint some one who is expertise in financial activities to take control of the finances and investment of the business.5.Company should be take a total control to expanding bus iness activities, like concentrate on order completion in time.6.Reduce stock level and minimize debtors collection period for short term.7.Try to lease, so company can save money on purchasing fixed assets. perfect words 2025References used for this report Atrill P. And McLaney E.(2006), account and finance for non-specialists. 5th Edition. London Prentice Hall EuropeDr. Saeudy M. (2010) Lecture notes, Ratio Analysis, Accounting and Finance module.Tracy J.A. (2008) Accounting for Dummies. 4th Edition. Indiana Wiley Publishing, Inc