Table of Contents
Below is general financial information about Gemma power System for fiscal year 2010, 2011 and 2012. The company provides a wide range of development, consulting, engineering, procurement, construction, operations and maintenance services to the power generation and renewable energy markets to a wide range of customers that include public utilities, power projects, municipalities, public institution and private industry. This analysis will provide profit ratios, stock price, financial ratios and market share of the firm as compared to the industry.
Ratio analysis and management decisions
In order to analyze the Gemma Company thoroughly, a methodical fashion is essential. Below the analysis of the Gemma company performance from the year 2010 to 2012 in terms of profitability and stock performance. Through this holistic analysis, the company will be able to build upon every recommendation in order to form a cohesive company picture (Rees, 2003).
The flow of cash in the company is very important as it determines the company overall success. Lack of adequate cash flow in a company usually leads to a company being declared bankrupt (Rees, 2003). Liquidity or the cash flow of a company can be measured in different ways. The most common ratios applied include current ratio and quick ratio. When an in depth analysis of the Gemma company liquidity from the 2010 to 2012 is conducted and compared to the industry, there is a good picture as to the health of the Gemma company’s cash flows. There has been a positive trend over the last three years.
Gemma power System Company as of 2010 had a current ratio of 3.9. This which means that the company had 3.9 times more current assets than the company has on current liabilities. This is very healthy figure in comparison to its competitors in the industry. In the year 2012, the current ration stands at 6.6 which also mean that the company has 6.6 times more current assets. This reflects a positive growth and outcome over the last three years. This means that the Gemma Company has managed to retain a high current ratio growth which actually suggests that its company’s operating norm.
As of 2010, the Gemma Company’s quick ratio stood at 4.9. In general, this gives a positive outlook of the company during that year of its ability to pay its liabilities. As of 2011, quick ratio stood at 3.3 while 2012 stood at 3.8. Although this number seem to lower, number is still acceptable in comparison to the industry. This is more likely due to the company’s unique characteristics of the industry the Gemma Company operates.
Gemma company’s sale outstanding stands at 3.96 as at 2012 from 3.67 12 at 2010. This means that at the end of fiscal year, the company had a 3.96 days’ worth of sales in account receivable. This number is excellent as compared to the industry. Gemma company actually seems to collect on its receivable very quickly thus enhancing its liquidity. This indicates a positive growth over the years from 2010 to 2012.
In overall, Gemma Company appears to have a desirable shape when it comes to cash flow or liquidity stand of the company. In each ratio examined above, the company seems to have a positive outcome over the years. This could possibly be attributed relatively high inventory turnover ratio that actually allows a company to better its liquidity ratios, in addition to assisting in asset utilization ratios.
Debt is an essential part of the company operations. Debt to the company has a both negative and positive effect depending on how it’s utilized. The structure and ratios related to debt can be a good picture to the health of a given company (Warren, 2007). From the analysis above, the Gemma company had a low debt to equity ratios as to the rest of the firm. Most company normally prefers utilization of internally generated funds prior to debts utilization. This is actually true for the Gemma Company. The enormous success achieved in the last 3 years has been financed by company’s internally generated funds. This means that the company has a sustainable and stable growth pattern.
A company asset allows it to generate its income. There are usually numerous ratios that measure the efficiency and effectiveness of a company in asset management. This includes Inventory Turnover, Total Asset Turnover Ratio, and Days Sales Outstanding (Warren, 2007). Gemma company has a consistent and above average inventory turnover ratio. As of 2010 it stood at 6.75, which means that the company had gone through its current inventory 6.93 times to generate a sale for the year. In 2012, it stands at 7.98 which mean that there was a positive growth in asset. This is because the higher asset turnover ratio, the fast the company is able to turn inventory into revenue.
Asset turnover of the company is the measure of how the company’s total asset is actually used to generate sales. Gemma Company has leveraged its assets in order to generate 5.87 times its asset as at 2012 as compared to 4.43 times in 2010. This means that efficiency in asset utilization has been improving over the years. In Days sales outstanding, which measures how the company assets are tied up in accounts receivable indicates that the Gemma Company is a very asset efficient company.
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Profitability analysis normally determines the company’s performance (Lerner, 2004). In the last 3 years, Gemma Company sales have experienced a steady growth. Currently, Gemma Company has a net profit margin of 3.6 percent as at 2012, which is a growth from 3.2 percent as at 2010. In addition, this is higher compared to its peers in the industry. The stability portrayed by the company over the last 3 years indicates that the company has stable profit- generating platform.
The capability of a company to fund its assets and competently using those assets to produce profits is measured by its stock in the market. Despite the challenges in the market, stock measures in general points people in the right direction (Lerner, 2004). The stock price is also a degree of how the management crew is performing in one of its primary goals of creating shareholder value (Lerner, 2004). At times it is hard to compare stock measures between companies because many of them are based on more arbitrary items like the number of shares outstanding. Gemma Power System ended its fiscal year with PE of 31.5.
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The Gemma Company has performed very well financially over the last 3 years as compared to its peers in the industry. The overall financial growth has been positive. This is clearly means that the company management has devised effective financial growth strategies which need to be adhered to in the future.