Gopher Manufacturing Financial Analysis Memo
Gopher Manufacturing Financial Analysis Memo
This memo includes a brief quantitative analysis of Gopher Manufacturing. After reviewing the company’s financial statements, the company has a healthy current ratio of 2, meaning that its short-term assets are readily available to pay off its short-term liabilities. Although its current ratio is a healthy 2, it should be noted that the company is retain about 13 percent of its current assets in the form of inventory and after computing its DIO, it is obvious that it takes the company about 240 days to be converted to sales, either as cash or accounts receivables. Moreover, Gopher Manufacturing Company’s Direct Sales Outstanding shows that it takes the company about 379 days to collect on Sales that go to Accounts Receivable. This is very high number and shows that even the current ratio is 2, the company is not certainly liquid because it takes it a long amount of time to collect its receivables.
The income statement shows that Gopher manufacturing has a gross profit margin of about 41 per cent. A lower than 50 per cent gp margin means that Gopher Manufacturing generates a low level of revenues to pay for its operating expenses and net profit. It also indicates that either the business is unable to control production and inventory costs (which can also be seen from the DIO), or the prices may be set too low. Moreover, the Net Profit Margin is a relatively low 7.7 per cent. This indicates the high Cost of Goods sold and may mean that the company is not keeping its operating expenses under control. If the Net Profit Margin goes any lower, Gopher Manufacturing might need to take on debt to pay its expenses.
This memo includes a brief quantitative analysis of Gopher Manufacturing. After reviewing the company’s financial statements, the company has a healthy current ratio of 2, meaning that its short-term assets are readily available to pay off its short-term liabilities. Although its current ratio is a healthy 2, it should be noted that the company is retain about 13 percent of its current assets in the form of inventory and after computing its DIO, it is obvious that it takes the company about 240 days to be converted to sales, either as cash or accounts receivables. Moreover, Gopher Manufacturing Company’s Direct Sales Outstanding shows that it takes the company about 379 days to collect on Sales that go to Accounts Receivable. This is very high number and shows that even the current ratio is 2, the company is not certainly liquid because it takes it a long amount of time to collect its receivables.
The income statement shows that Gopher manufacturing has a gross profit margin of about 41 per cent. A lower than 50 per cent gp margin means that Gopher Manufacturing generates a low level of revenues to pay for its operating expenses and net profit. It also indicates that either the business is unable to control production and inventory costs (which can also be seen from the DIO), or the prices may be set too low. Moreover, the Net Profit Margin is a relatively low 7.7 per cent. This indicates the high Cost of Goods sold and may mean that the company is not keeping its operating expenses under control. If the Net Profit Margin goes any lower, Gopher Manufacturing might need to take on debt to pay its expenses.