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?