Financial Report Of The Holyrood Golf Club
Financial management is an important part of business. Often managers and directors complain about external conditions taking away their profit, while the actual problem might be internal in nature. A good financial management and a well thought financial strategy is as important as an aggressive marketing strategy or sales campaign. Addressing financial problems could save the company from a large amount of unnecessary cost, therefore increase corporate profit to optimum.
Within the case of Holyrood Golf Club, we can see that the financial trouble is considerably connected to managerial problems. However, there are also problems that concern the larger scope of the industry. Withi...
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...n this essay, we will mostly address the financial and managerial problems, but we will not neglect to acknowledge problems that concern the potential of the industry itself.
( you have to include with a brief description what you reports includes..the ratio analysis, the cash flow…and the recommendations, remember you speak and give instructions to the person that hires you to do that, you are the consultant)
- Financial Ratio Analysis
Financial analysis is commonly used to describe current condition of company’s financial condition. Nevertheless, managers and investors also use them as tools of financial forecast. In both purposes, financial analysis often starts by observing financial ratios. There are several basic groups of financial ratios, they are: liquidity, asset management, debt management and profitability ratios (Weston, 1990).
Liquidity is one of the main concerns of stakeholders. It represents corporate ability to pay-off its short term loan. There are two significant ratios representing this quality, they are the current ratio and quick ratio.
According to Holyrood’s financial report, liquidity ratios had experience negative development since September 1994. The only upside within this ratio occurred during 1994, where the current ratio increased by 20.65% to 2.84 and the quick ratio increased 31.95% to 2.56. From then, liquidity performance fell almost 100% annually. Generally, financial ratio analysis must be accompanied with information regarding industrial average. From the comparison between corporate ratio and industrial average, we could then assess performance of the company. Nevertheless, it is generally acknowledged that current ratio should not be under the number 1. If current ratio drops below 1, it means current assets are smaller than current liabilities, and thus, the company does not have the ability to meet its current financial obligations to creditors (Weston, 1990).
- Asset Management
Asset management ratios consist of inventory turnover, receivable turnover, and asset turnover. Regarding asset management, Holyrood’s financial statement delivered mixed signals. Inventory management efficiency increased by 20% during the 4 financial periods, while asset management performance seemed to decreased by 25%. Furthermore, receivable turnover ratio indicated that account receivable management is unstable. During the period that ends September 1994, receivable management efficiency decreased by 77%, while during the next financial period, the ratio indicated that receivable management increased six fold.
- Debt Management
There are actually several ratios within the debt management analysis. However, due to limited information, we can only take advantage of the debt to asset ratio. Unfortunately, this ratio also indicated a constantly declining performance of the company. Overall, the amount of debt is not within a proportion that is considered dangerous, but the ratio shows gradual increase of debt proportion to total assets.
Profitability is the second most important ratios after liquidity. Some investors even look at these ratios first, before looking at any other ratios to get information on the value of a corporation. The profitability ratios consist of profit margin, return of asset and return on equity.
Despite the importance of these ratios, Holyrood displayed a rather terrible performance. Corporate financial report indicated losses during the last three financial periods. Furthermore, the profit margin ratio indicated a significant drop during 1996 that it displayed a bad prospect for the 1997. Nevertheless, there are also other indicators of financial performance that will be discussed within this essay.
In conclusion there are two main problems needed to be addressed soon. The first issue is corporate operations. The cash flow statement indicated that during the 3 periods, Holyrood has an unstable management within its daily operations. The amount of account receivable, account payable and inventory indicated that the company was having a trouble in managing its accounts.
According to the liquidity ratios, the company could no longer rely on short-term debt instruments because creditors would not be optimistic on corporate ability to settle its debts. The asset management ratios indicated that the company was unstable in its operating management, which would lead to public assumptions that future prospects are at questionable. Furthermore, judging from the increasing amount of loss during the last three periods, the profitability ratios indicated that the company has yet no sales potential that was capable of improving its financial performance in the future.
The second issue is capital management. As we can observe, in 1995, there was a significant decline on net cash flow. The decline was caused by a large amount of fixed asset procurement. Within its current condition, the company already had trouble managing its existing fixed assets. Additional fixed asset without a credible prospect would bring the company a lot more financial burden in the future.
Below is the summary of financial ratios of Holyrood Golf. The formula we use to calculate the financial ratios are provided in the appendices.