Compnet International Executive Summary
Financial statement overview Compnet International is a US-based Company that manufactures automobiles parts and various technical parts used in computers and computerized devices. Having established a cash reserve, Compnet seeks to ensure financial stability by increasing the company’s financial liquidity in meeting the day-to-day financial obligation. This means that the company shall put aside a portion of its liquid finances either in short term investments or in bank accounts and withdraw the funds when need arises. Using this strategy, the Company is ought to cushion itself from financial mishaps as on the event of inability to pay up debts the cash reserve shall be used to settle the debt. Moreover, the reserve can be used as an investment, therefore, help increase the firm’s revenue or get used as a backup for the Company on
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the event of financial crisis in the external environment of the firm (Weil, Schipper, & Francis, 2012). Goodwill is considered a major long term asset that determines the success of any firm. Compnet had a charge for the impairment of the goodwill following the continued reduction in the goodwill evident from the Company’s Balance sheet. In 2010, the Company recorded $37020 as the total intangible assets inclusive of the goodwill which intensively declined to $12900 recorded in 2014. This is a substantive decline in the value of the good will thus leaves the Company with no other option but to pose a charge for the impairment of the company’s goodwill (Wild, KenShaw, & Chiapetta, 2013). In this case, posing a charge on the impairment of the will means the company writes off the goodwill for the intensive loss of value (Wild, 2012). The Company shall, therefore consider the activity as an expense on its entrance in the profit and loss accounts of the company then the amount goodwill gets reduced by the impairment amount charged. This poses an adverse implication on the firm as the net worth shall be reduced and the profits reported shall also reduce following the loss in value of the goodwill (Wild, 2012). From the Company’s financial reports, the long term debt is valued at$3 million and it is due in three years. This information is of great significant to the investors and other stakeholders of the Company as from the information, debt to equity ratio can be established as total debt/total equity of the Company that is Debt to equity ratio =3097/251301=0.012. On comparing this information with the records, i.e. 5434/223147= 0.024 (2010), it shows the increased dependence on the debts for financing the business which is a great risk to the firm’s financial health (Wild, KenShaw, & Chiapetta, 2013). The investors can then choose whether to invest in the company of withdraw their investments for the diversification purposes which may help the hedge against loss of their investments. In 2013, the company’s account receivables declined from $56501 in 2012 to $49200 in 2013.
Revenue also decreased from $516349 to $383716 in 2013. Over the years, the account receivables have been considered a significant asset that has even been employed as collateral on loan acquisition. Their decrease is a sign of adverse being to the company as reduction in account receivables means reduced debtors which reflects reduced trust and relation between the customers and the Company (Weil, Schipper, & Francis, 2012). The company is, therefore left with fewer customers to purchase their goods thus the core reason for the reduced sales. The company shall thus record an increase in the working capital as it is considered as great source of cash in the cash flow statements (Wild, 2012). However in 2014, the company managed to record an increase in the cash receivable to $75510. Viewing the sales records the customer-company relationship remains unchanged thus the company decided to opt for an additional source of funds to finance the facilitation of the business as attested to by the increase in debt in 2014 to
$5434.
Part II; Recommendation for future Growth Compnet Financial status stands in a crucial path characterized by declining revenue, reducing sales, reduced current assets, increased liabilities and declining stockholder’s equity. This exposes the company to liquidity risks whereby the firm may fail to meet the diurnal financial obligations that may result leave the Company in bankruptcy and failure of the Company following lack of funds to finance the Company practices.
1. As a strategic plan to elude from the adverse implications of the status the company operates, the firm is ought to first start be creating the best customer experience in a bid to stabilize the financial liquidity of the Company and to facilitate the increment of the customers to buy goods either on cash basis or on credit for the trustworthy customers. This will improve the customer-company relationship that shall conceive loyal clients with numerous referrals following their satisfaction. This move shall also be fuelled by the additional efforts to market the products to increase the customer base and also venture into new markets to increase market coverage. The Company is already one step in the plan following its plans to develop new product lines to help win back its customers and even acquire more cutomers.
2. However, this strategy stands exposed to challenges and risks having less funds to finance the plan as the firm is greatly reliant on debts , therefore shall pose a great challenge to effectively implement the plan. From the assessment of the debt to equity ratio, debt to equity ratio =3097/251301=0.012. On comparing this information with the records, i.e. 5434/223147= 0.024 (2010), it shows the increased dependence on the debts for financing the business which is a great risk to the firm’s financial health. The Company should consider paying up its debts to reduce the liability by establishing alternative payment methods to pay the loans either by increasing the sales of shares to the market to raise more funds to finance the business. Paying up the loans shall help the firm reduce the interest expenses arising from the loans. Being an equity source of funds, the Company shall stand to face little burden as the stockholders shall be well informed of the market fluctuations thus hold their decisions responsible for their profitability.
the event of financial crisis in the external environment of the firm (Weil, Schipper, & Francis, 2012). Goodwill is considered a major long term asset that determines the success of any firm. Compnet had a charge for the impairment of the goodwill following the continued reduction in the goodwill evident from the Company’s Balance sheet. In 2010, the Company recorded $37020 as the total intangible assets inclusive of the goodwill which intensively declined to $12900 recorded in 2014. This is a substantive decline in the value of the good will thus leaves the Company with no other option but to pose a charge for the impairment of the company’s goodwill (Wild, KenShaw, & Chiapetta, 2013). In this case, posing a charge on the impairment of the will means the company writes off the goodwill for the intensive loss of value (Wild, 2012). The Company shall, therefore consider the activity as an expense on its entrance in the profit and loss accounts of the company then the amount goodwill gets reduced by the impairment amount charged. This poses an adverse implication on the firm as the net worth shall be reduced and the profits reported shall also reduce following the loss in value of the goodwill (Wild, 2012). From the Company’s financial reports, the long term debt is valued at$3 million and it is due in three years. This information is of great significant to the investors and other stakeholders of the Company as from the information, debt to equity ratio can be established as total debt/total equity of the Company that is Debt to equity ratio =3097/251301=0.012. On comparing this information with the records, i.e. 5434/223147= 0.024 (2010), it shows the increased dependence on the debts for financing the business which is a great risk to the firm’s financial health (Wild, KenShaw, & Chiapetta, 2013). The investors can then choose whether to invest in the company of withdraw their investments for the diversification purposes which may help the hedge against loss of their investments. In 2013, the company’s account receivables declined from $56501 in 2012 to $49200 in 2013.
Revenue also decreased from $516349 to $383716 in 2013. Over the years, the account receivables have been considered a significant asset that has even been employed as collateral on loan acquisition. Their decrease is a sign of adverse being to the company as reduction in account receivables means reduced debtors which reflects reduced trust and relation between the customers and the Company (Weil, Schipper, & Francis, 2012). The company is, therefore left with fewer customers to purchase their goods thus the core reason for the reduced sales. The company shall thus record an increase in the working capital as it is considered as great source of cash in the cash flow statements (Wild, 2012). However in 2014, the company managed to record an increase in the cash receivable to $75510. Viewing the sales records the customer-company relationship remains unchanged thus the company decided to opt for an additional source of funds to finance the facilitation of the business as attested to by the increase in debt in 2014 to
$5434.
Part II; Recommendation for future Growth Compnet Financial status stands in a crucial path characterized by declining revenue, reducing sales, reduced current assets, increased liabilities and declining stockholder’s equity. This exposes the company to liquidity risks whereby the firm may fail to meet the diurnal financial obligations that may result leave the Company in bankruptcy and failure of the Company following lack of funds to finance the Company practices.
1. As a strategic plan to elude from the adverse implications of the status the company operates, the firm is ought to first start be creating the best customer experience in a bid to stabilize the financial liquidity of the Company and to facilitate the increment of the customers to buy goods either on cash basis or on credit for the trustworthy customers. This will improve the customer-company relationship that shall conceive loyal clients with numerous referrals following their satisfaction. This move shall also be fuelled by the additional efforts to market the products to increase the customer base and also venture into new markets to increase market coverage. The Company is already one step in the plan following its plans to develop new product lines to help win back its customers and even acquire more cutomers.
2. However, this strategy stands exposed to challenges and risks having less funds to finance the plan as the firm is greatly reliant on debts , therefore shall pose a great challenge to effectively implement the plan. From the assessment of the debt to equity ratio, debt to equity ratio =3097/251301=0.012. On comparing this information with the records, i.e. 5434/223147= 0.024 (2010), it shows the increased dependence on the debts for financing the business which is a great risk to the firm’s financial health. The Company should consider paying up its debts to reduce the liability by establishing alternative payment methods to pay the loans either by increasing the sales of shares to the market to raise more funds to finance the business. Paying up the loans shall help the firm reduce the interest expenses arising from the loans. Being an equity source of funds, the Company shall stand to face little burden as the stockholders shall be well informed of the market fluctuations thus hold their decisions responsible for their profitability.