Monitoring Financial
Performance
My Food Co Limited is a creator & brand owner of a line of gourmet food products for when you are entertaining your friends and family. Miss J is the director of My Food Co and is a very innovative food technologist. All manufacturing is outsourced to another company.
The company has traded for 5 years and has been endeavouring to grow its business in; sales, locally, offshore and further product lines, which now currently totals 6. There are another 2 lines to bring to market, including a product to supplement the coffee market.
This product will require $350,000 to complete the development of the machine and launch the product.
The company trades in NZ, Australia, Canada and USA. However the supermarket industry in NZ and Australia are in turmoil and very stringently controlled by the Australian parent company's who are looking to reduce lines. As a result My Food Co lost a sales contract in Australia valued at $1.1m. The Australian market now only contributes $285,000 in sales to My Food Co.
Despite the grocery staff from the major NZ food chains being on strike and orders not being stocked in store, NZ has grown by $170,000 to $703,000 sales. In NZ My Food Co requires working capital of $500,000.
The USA is a new market to My Food Co. The US market has grown in the last year by $180,000, to $200,000 in turnover. There is a significant amount of interest from US Gourmet Supermarket Chains to buy product and in order to pursue the US market, this will require a marketing budget of $500,000 and a fulltime position in US of $150,000.
On top of these issues the management accounts have just been given to Miss J and it looks as though the company is not meeting its bank covenants of interest coverage of 25 times and equity ratio of 45%. Miss J has engaged your company 'Strategic Management Consultants' to provide a report of its financial health and for advice as to what course of actions it should take given the current financial state and how it might continue to grow prior to meeting with the Bank.
Required:
To complete this assignment successfully you will need to do the following;
In your role of consultant you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the inter-firm comparison table.
1. Calculate all eleven ratios for each of the 2013, 2014 and 2015 results. Show the formula and explain how each ratio is defined and what it measures.
2. Prepare a detailed report on the company's performance compared with the average of the sector over the period. Include in your report suggestions how to improve ratios that are adverse to the Industry Averages.
Your report should cover your assessment of the following:
- The business's profitability. Consider both how good or poor the profit performance is, and identify the reasons for any change in profitability.
- The business's financial stability, both immediate and longer term.
- How well assets have been managed and utilised.
- Your conclusion as to what business and financial steps should be taken prior to the meeting with the Bank.
Your report should be based on appropriate ratios and information provided and should be from 4 to 8 pages or 1500 to 3000 words. Calculate and include the ratios as an appendix to your report.
Please state any assumption/s, and the reasoning for the assumption/s, that you make in your analysis