Financial Analysis of Alpine Construction Ltd And Maple Builders Ltd

Document Type:Coursework

Subject Area:Accounting

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The calculations involved in this report include current and quick ratios, Debt ratios, the rate on shareholder equity, total assets, for the two companies for the different financial years. All the computations are attached in the Appendices section. From the computations and trend analysis, it can be deduced that Maple Builders Ltd offers the best choice for investment by Taggart Transpacific Ltd. Specifically Maple is found to be a better performer in terms of liquidity, financial stability and assets use. The report reflects that Maple Builders Ltd is a better choice as opposed to Alpine Construction Ltd due to the following major reasons of better performance due to liquidity, financial stability. Taggart Transpacific Ltd must however consider the fact that Alpine still offers better performance in terms of profitability. Upon investing in this company, as a major shareholder in the company, Taggart Transpacific Ltd must investigate on the various ways of improving Maple’s relatively low profit margins. Besides the report also include that the analysis carried out via this method has some setbacks such as the provided information is also inclusive for the entire year and might not take care of monthly variations. The figures used are based on past performance and might not accurately project future performance. Contents 1. INTRODUCTION 4 2. DISCUSSION 4 2. WORKING CAPITAL MANAGEMENT 5 2. Current ratio 5 2. Quick ratio. PROFITABILITY RATIOS 7 2. Percent Gross Profit. Percent Profit Margin on sales 9 2. Percent rate of return on Assets 10 2. ASSET UTILIZATION RATIOS 11 2. Inventory turnover ratio. Account Receivable Turnover 13 2. SOLVENCY 14 2. Debt to equity ratio 15 2. Debt to assets ratio.

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REFERENCES 21 6. APPENDICES 22 6. Appendices A : Plan 22 6. Disclaimer 22 6. Purpose of the Report 22 6. The company is considering making this investment in either Alpine Construction Ltd or Maple Builders Ltd. In order to realize the merits of this program the company must make the right choice the company must ascertain which of the two possibilities offers the best market for their products in terms of financial benefits. The company thus hired financial analyst to determine which company will offer the best outcome. The analysis will include both the strengths and weaknesses of the two companies based on the financial data for the year ended March 2017 and March 2018. This report thus provides information obtained via the ratio analysis in relation to the profitability, liquidity as well as financial status of Alpine construction as well as Maple builders.

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The working capital management of the two companies can thus be evaluated via the use of current ratio and the quick ratio. The results obtained from these ratios depict the efficiency of the company in the management of the inventory, account receivable and the short term investments (Aydogdu, 2018, p. Current ratio This ratio provides a reflection of the ability of the short term assets to cover the short term liabilities. This ratio provides an indication of the company’s ability to service its current obligation. Current ratio= Current Assets/Current Liabilities. which is a representation of desirable result for TT investment since the figure demonstrates better potential of settling debts compared to the 2017 results. The increase is however still incapable of achieving the industry standards of 2. The decline the Alpine’s current ratio is a result of the increase in the company’s liabilities which were higher, 28% increase from the 2017 values than the rise in the current assets within the same period which were 17% hence yielding the decline in the current ratio.

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The rise in the Maple current ratio was a result of the decrease in the current liabilities by 3. between 2017 and 2018 which was relatively higher than the decline in the current assets which declined by 3. MAPLE 1:1 1. Increased 0. From the table, Alpine’s quick ratio declined by 0. from 2017 to 2018. These present undesirable conditions since the company has a relative decline in its liquidity compared to the previous year. Keeping in mind that quick ratios offers liquidity ratio which is independent on the use of inventory in order to take care of the company’s liabilities, this is relatively safer than sales of company’s product in order to take care of debts. Maple Builders Ltd thus offers the best liquidity for TT. PROFITABILITY RATIOS Profitability ratios are the measure of the company’s ability to make use of its assets or capital in generating profits.

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Since companies will always strive to better their profitability, evaluation of the profitability ratios is crucial in the determination of the company’s success. Sawyer, 2014, p. This is undesirable for the company since the company shows a decline in the revenue aimed at covering its expense relative to the previous year. The gross profit Maple Builders Ltd however showed an increase of 10. in the same period of time. This is a favorable indicator of profit increase of the company making it more suitable for future prospects since it demonstrates its ability to increase its ability to improve its revenue coverage to cater for the expenses than the previous year. The rise in the gross profit is however inadequate to meet the industry’s standard of the 60 % gross profit. The net sales are the total gross sales less the inward returns and the allowed discount.

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Earnings before Taxes / Sales * 100 TABLE 2. Percent Profit Margin on Sales NET PROFIT 2017 2018 DIFFERENCE INDUSTRY INDICATORS ALPINE 22. Decreased 9. MAPLE 6. from 2017 to 2018 plus the rise in the cost of goods sold by 33. within the same period. The operational expenses of Maple are increased by about 25. from 2017 to 2018leading to the increase in the Maple’s net profit. Consequentially the increase in the net sales by 10. Increased 20. From Table 2. Alpine ratios show a decline of 60. in 2017 to 2018. This is detrimental to the investment in this company since the profit realized per unit asset is lower relative to the previous year. The results in the tables indicates that Alpine profitability ratios declined between the year 2017 and 2018 while those of Maple shown increase within the same period. Despite the above trend the Alpine profitability ratios are still better than those of Maple (by about 5% for the gross profit margin, 2, 7% for the net profit margin and 7% for the return on assets.

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Alpine thus provides the best choice for the long term profit benefits. ASSET UTILIZATION RATIOS Asset utilization ratio is a measure of how efficient a business or a company is at using its assets to generate sales for its own success and the capacity of the company to collect from the customers the value from the sales made (Sawyer, 2014, p. It calculates the total revenue earned for every dollar of assets owned by the company. Increased 0. Times per year MAPLE 7. Increased 0. As depicted in the table shown above, the inventory turnover ratio of the two companies under consideration has increased between 2017 and 2018 with Maple Builders Ltd in 0. times and Alpine construction Ltd in 0. Table 2. Accounts Receivable Turnover. AC. RECEIVABLE TURNOVER 2017 2018 DIFFERENCE INDUSTRY INDICATORS ALPINE 68. Decreased 25. The increase was not good enough though, to match the industry’s indicators of 50 times annually.

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The Alpine’s accounts receivable turnover decrease could be attributed to the decrease in net credit sales by 19. between 2017 and 2018 and the increased accounts receivable by 20% in the same duration of time. On the other hand, the increase in the accounts receivable turnover ratio of the Maple Builders Ltd was due to their increased credit sales by 10. between 2017 and 2018 and the decreased accounts receivable by 17. Before investing, it is important for TT to find out which of the two companies has a better ability to take care of its liabilities. They are the key determinants of whether creditors can allow credit to the company or not. The investors, shareholders and lenders also find this ratios important in the determination of the organization’s ability to settle its debts (Ma, Gans, & Tourky, 2018, p.

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Debt to equity ratio This ratio indicates a direct relation which exists between the total debts of the company the business’s total equity. The indicates the percentage of the assets which are financed by the company’s shareholders. The decline in the Alpine and Maple’s debt on equity ratios are attributed the decrease in the liabilities of the two companies between 2017 and 2018(), 13. and 16. with respective rise in the total equity of 32. and 48. within the same period of time. From the table, it is evident that the debt on asset ratios of the two companies declined between 2017 and 2018. That of Alpine decline by 14. while that of Maple declined by 14. These values are both below the industry indicators of 80%. The debt on assets ratio of the Mable company is however still lower than that of Alpine Company.

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The financial markets can be analysed in two ways: The earning per share and dividends per share ratios. Earnings per share ratio. The earnings per share ratio are calculated as the net profit after tax and preference dividends divided by the number of ordinary shares issued. This ratio illustrates the value per share that the company earned in a given period of time and also shows the amount of profit the business has in relation to the shares of the company’s stock. Thus, the higher the earning per share ratio, the better for both the company and investors. ’s ratios, however, saw an increase of 70. between 2017 and 2018 which represented a good result to the company since it indicates that the company made more profit that could be made available for distribution to its shareholders than the previous years’.

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This increase was not enough to obtain a higher ratio as that of Alpine Construction Ltd in both 2017 and 2018. The decrease in the earning per share ratio of Alpine Construction Ltd could be as a consequence of the decrease in the company’s net profit by 51. between 2017 and 2018. From the values in the above table, the dividends per share of the Alpine Construction Ltd notably decreased by 51% between 2017 and 2018. The decrement is unfavorable to the shareholders since it showed that the company paid reduced profits to the shareholders compared that paid in the previous year. The dividends per share ratio of Alpine Construction Ltd, however, were above the industry’s indicator and were considerably higher than Maple's ratios. The Maple Builders Ltd. ’s ratios, however, saw an increase of 30% between 2017 and 2018 which represented a good result to the shareholders since it indicates that the company made more profit that could be made available for distribution to its shareholders than the previous years’.

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CONCLUSION From the report, the profitability ratios for Alpine are declining while those Maple are increasing. The profitability ratios of Alpine are however still more than those of Maple by (4. for GPM, 2. on NPM and 7. for the RoA). In comparison, Alpine company thus has lesser dependency on the assets to pay the liabilities. Based on the analysis of the financial ratios, it is clear that Maple Construction Ltd is the best company for TT to invest in as compared to Alpine. This is because Maple’s ratios depict a better efficiency relative to Alpine. Besides it offer the best financial stability, its market position is improving and its profitability are on the rise despite the fact that they are still lower than that of Alpine. RECOMMENDATIONS From the analysis of the financial ratios provided herein, I recommend that Taggart Transpacific Ltd.

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Extracting Sentiment from Financial Statements Using Neural Networks. SSRN Electronic Journal. doi:10. ssrn. Ma, J.  Y. Making Business Decisions Using Quantitative Models: Decision Analysis Best Practices. Financial Modeling for Business Owners and Entrepreneurs, 213-230. doi:10. Sherman, E. The computed ratios are then compared to the industry indicators aiming to assist the board of directors of TT Company in making a decision on their planned investment in either Alpine Construction Ltd or Maple Builders Ltd. The Audience for The report. The report is prepared for the board of directors of TT Company to assist them in decision making in the company’s planned vertical integration through purchase of a controlling interest in either Alpine Construction Ltd or Maple Builders Ltd so as to ensure future demand for TT’s building materials. The scope of the report The scope of this report is the examination of the profitability of Alpine Construction Limited, the management of their working capital and the associated ratios with an objective of finding out which of the company between the two companies has better long-term potential and offers better liquidity.

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The financial ratios involving assets utilization and financial markets are also analyzed in order to identify the most efficient business to invest in. times 7. times 2) Accounts receivable turnover 68. times 46. times 24. times 31. The company must also be able to demonstrate that its liabilities including those likely to occur form the future contingent. According to Director’s legal duties and personal liabilities, under the Companies Act 1993, part 8, sections 133 – 137, prior to the application of dividend, the director must endorse company’s solvency with care, skill and conscientiousness by the analysis of the solvency test results. In situations where the director fails to meet the legal requirements and as consequence to shareholders distribution causes damage to the company, the director is legally liable to personally pay for the damages. Finally the director must base their solvency test based on the recent financial statement of the company and on the organization’s accounting records() Current Ratio = Current assets – dividends / Current liabilities+ rent = 350,000-50,000/160,000+40,000 = 1.

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CURRENT RATIOS 2018 INDUSTRY INDICATORS ALPINE 1. Firstly, only the financial statements as at 31 March 2017 and 31 March 2018 were provided and hence the analysis and also, the report, are limited to this specified period. Secondly, the analysis presented herein is based on only 11 ratios relating to income statements and balanced sheets and does not present the other ratios that could possibly be used. Also, other financial statements such as cash flows and statements of changes in equity were not considered herein. These notable omissions could have negatively influenced the final outcome of this report. Thirdly, the advice provided herein takes no considerations of the strengths of the market brands and was made without accessing the information of the differences in cost of acquisition of the companies since no information in regards to this was provided and the analyzed companies were also fictional.

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