Free «Financial Analysis of Dermabit Waterproofing» Essay Sample


Dermabit Waterproofing industries Co. (DWI) is a manufacturing company that was established in 1982. The company specializes in manufacturing roofing and water proofing membranes. The company has been able to perform well financially over years and leading to its increased capacity to manufacture various types of bituminous membranes. However, the company did not perform well in its financial year that ended in 31 Dec 2009 leading to doubts of its ability to obtain credit to boost its productivity. This study examines the financial statements of Dermabit Waterproofing industries Co and makes recommendation as to whether the company qualifies for funding (Dermabit, 2010).


A balance sheet is a quantitative financial statement of an organization that shows the financial position of DWI Company at a given period. The report shows the assets, the liabilities and the net worth of the stores. The current assets, current liabilities and the statement of the position of the company are all shown. From the balance sheet of DWI Company, it is clear that all these three things are shown in the balance sheet (Wal-Mart Stores, Inc. 2009). The current assets of the Company include cash equivalents, accounts receivables, prepaid expenses and inventories. Each of these current assets has affected the cash management strategies of DWI Company differently. The total current assets increased by 14.7% in 2008 and decreased by 8.87% in 2009. The liabilities of the company also increased by 3.7% in 2008 and increased further by a margin of 27.2% in 2009. The overall net worth increased by 14.35% in 2008 and declined by 38.37% in 2009. The impact of these increases and decreases in the balance sheet totals imply that the company has not been did not perform well for the financial year 2009. This can be seen from the large decline of the net worth of the company by 38% in the 2009 financial year (Dermabit, 2010). 



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The analysis of the financial ratios of the firm will help the understanding of the financial standing of the organization. From the balance sheet, we can calculate the liquidity ratios. The liquidity ratios are important to the firm since they provide information to the organization about the ability of the organization to meet its short-term financial obligations as they fall due. They are of particular interest to those extending short-term credit to the firm. The two most commonly used ratios are the current ratio and the quick ratio. The current ratio of the organization increased in 2008 (from 1.36 to 1.52) and declined in the financial year 2009 (1.07). A small current ratio is usually important to short term creditors because it reduces risks. Additionally, investors may prefer a small current ratio so that more of the firm's assets are working to grow the business. Due to the small current ratio, the firm is able to obtain funding from shirt term creditors. The quick ratio is also increased and then declined in the three year period from 2007-2009. This means that the liquidity of the firm is quite low (Dermabit, 2010).

The income statement of the organization also depicts similar trends. In financial year that ended 2008, the company increased its cash flows with the same cash flows declining in 2009. For instance, the sales revenues for the manufacturing company rose by 21.25% in 2008 only to decline a year later by 12.6%. The gross profit and the net profit also rose by 17.8% and 20.4% in 2008 and increased further by 170% and 260.7% in 2009 respectively. From the cash flow statements, we can work out the profitability ratios. The return on assets ratio is an important ration that can be utilized by the firm to obtain funding. The return on assets increased significantly from 32.94 in 2007, 36.49 in 2008 and 138.71 in 2009. This indicates that the firm reaping from its invested assets. This increase in assets returns is what contributed to the increase in the sales revenue (Dermabit, 2010).

The analysis of the cash flow statements of the firm reveals that the company has been improving its cash usage through minimization of costs. Cash receivables by the firm reduced by 5.8% in the financial year that ended Dec 2009. The cash paid to suppliers also improved. In the financial year that ended in 31, Dec 2008, the company owed 159,916 to suppliers. However, the company improved on this figure in the 2009 financial year to end up with a surplus of 14,184 that was owed to the company by suppliers. This is a positive step towards in improving the company’s liquidity, performance and growth. Additionally, the better signs of future performance are indicated by the increase in the net cash received by the company from its operations by 379.5%. This led to the improvement in the cash and cash equivalent at DWI Company. Activity ratios indicate that the company is doing well and is able to improve its net sales. Though the liabilities increased, net return on assets set them off leading to the growth in net profit (Dermabit, 2010).

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DWI Company is stable and qualifies for a loan following its financial performance analyzed above. Though liabilities have increased, sales and return on assets have increased leading to increased net profit.  The company has strong strengths in the return on its invested assets. However, the increase in return on assets is affected by low unstable sales and increasing liabilities, which reduce the gross profit margin. 


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