Stilsim And Staffaces Receivables Ratio
Asset Management
Asset management describes how efficiently an organization uses its assets to generate sales (Dess, McNamara, & Eisner, 2016, p. 447). The two asset management ratios that are used to compare StilSim to the competitor, StaffAces, are receivables turnover ratio and days in receivables ratio.
Receivables Turnover Ratio and Days in Receivables Ratio.
The receivable turnover ratio is used to determine how quickly StilSim collects on a sale. The receivable turnover ratio is determined by diving sales by account receivables. StilSim’s receivable turnover ratio in 2016 was 3.0. This means StilSim collected on sales 3 times a year. StaffAces receivable turnover ratio in 2015 8.4 (Franklin University, 2013). They collected on sales …show more content…
8 times a year.
Days in receivables ratio determines how many days after a sale it takes to collect on it. To determine the days in receivable divide 365 days by receivable turnover. StilSim’s days in receivable ratio in 2016 was 120 days. Therefore, on average, StilSim collects on its sales in 120 days. StaffAces days in receivable ratio in 2015 was 44 days. Strength or Weakness. As seen in the chart below, this is a weakness for both companies but especially for StilSim. It is taking on average 120 days for StilSim to collect once a job has been completed. They are completed the work and then waiting 3 months to get paid for the job. This is also a weakness for StaffAces. Although not quite as big as a weakness as it is for StilSim. StaffAces could improve the time it takes to collect once they have complete a job for a client.
Dividend Payout vs. Retained Earnings Ratios. Dividend payout is the amount paid regularly to stockholders by a company out of its total net income (Finance Formulas, n.d.). In 2016, StilSim paid out $224,111 in dividends. StaffAces did not pay any dividends. Retained earnings is the percent of net earning not paid out in dividends (Investopedia, n.d.). StilSim retain earnings in 2016 was $900,163. StaffAces retain earnings in 2015 was $3,913,260. Strength or Weakness. StilSim’s dividends are a weakness. The company is paying out more in dividends than the net income. StilSim’s net income in 2016 was $79,145 and the company paid $224,111 in dividends. The company is cutting into previous net income earnings. This is not retainable as the company eventually will not have cash to pay.
Profitability Measures
Profitability measures are the best well known and most used financial ratios. These ratios are used to determine how well a company uses its assets and the efficiency of its operations (book 448). To determine a company’s profit margin the net income is divided by sales.
Profit Margin trend between StilSim and competitor.
StilSim’s profit margin in 2016 was 2.3%. This means StilSim generates a little over 2 cents in profit for every dollar in sales. StaffAces profit margin in 2015 was 2.7%. This means StaffAces generates almost 3 cents in profit for every dollar in sales. Strength or Weakness. The below chart of the profit margin of StilSim and StaffAces shows the trend of the two companies. The profit margin for StilSim is a weakness. The profit margin was much higher in 2011and 2012 at 14.9% and 15.5%. In 2013, the profit margin started to decrease and has continued to trend down since. StaffAces profit margin is low but has increased every year since 2011. It is desirable for both companies to have a relatively high profit margin.
ROA & ROE comparisons between StilSim and competitor. “Return on assets (ROA) is a measure of profit per dollar of assets” (book 449) The ROA is calculated by dividing the net income by total assets. “The return on equity (ROE) is a measure of how the stockholders fared during the year” (book 449). The ROE is called by dividing the net income by the total equity. In 2016, StilSim’s ROA was 2.1% and ROE was 2.7%. StaffAces ROA was 2.7% and ROE was
11.4%. Strength or Weakness.
StilSim’s ROA and ROE is a weakness. Both ratios have been in a decline trend. In 2011, StilSim’s ROA was 12.5% and ROE was 14.3%. Year after year both the ROA and ROE has trended downward. In 2016, the ROA was 10% lower than 2011 and the ROE was over 11% lower than 2011. StaffAces ROA and ROE are in much better shape than StilSim’s. Both ratios have been in an incline trend. In 2011, StaffAces ROA was 1.7% and ROE was 3.1%. In 2016, the ROA for StaffAces was 4.5% higher than 2011 and the ROE was over 8% higher than 2011.
Branch profitability comparison.
Capital City revenue in 2016 was $1,571,866. This was a decline from 2011 when it was 1,930,425. Lakeside revenue in 2016 was $935,431. Lakeside revenue in 2016 was also a decline as in 2011 the revenue was $1,178,909. Mountainview revenue was $629,429 in 2016. This was from it 2011 revenue of $875,00. All three branches of StilSim has seen a decline in revenue since 2011. As soon in the below graph Capital City is below the other two branches profit margin.
As seen in the below chart Capital City is below the other two branches profit margin. Capital City profit margin has been in a steady decline over the years but has improved slightly from 2015 to 2016. The profit margin for Capital City started at 14.95% in 2011 and declined over the years to -3.1% in 2016. Lakeside profit margin has also been in a steady decline. The profit margin for Lakeside start at 19.9% in 2011 and has declined over the years to 6.8% in 2016. Mountainview profit margin as also seen a decline. The profit margin for Mountainview started at 22.33% in 2011 and decline over the years to 6.7% in 2016.
Implications.
As soon in the above charts StilSim is in financial trouble. The short-term liquidity ratios, current ratio and cash ratio, show the company is making investments back into the company. This could be used to work on the company’s long-term liquidity issues. StilSim’s total debt continues to grow but the profit margin continues to decline. The company needs to make improvements to be able to offer the same services as the competitors or offer services that makes the company stand out. The receivable turnover and days in receivables needs reduced as these two ratios are very high. StilSim is not collecting on it sales as often as they should be collecting. Dividends are another issue seen at StilSim. The company is paying more in dividends than available cash in net income. The company will eventually run out of funds. Do to all the financial decline the ROE and ROA are in a decline and all branches of StilSim has seen a large decline in profit margins. These implications show that StilSim is need of a proper strategy to increase it financials and to continue to stay in business.
Summary of Financial Performance Interpretation This financial interpretation shows that StilSim needs to make big improvements. The short-term liquidity shows the company has cash and assets that can be used to improve the company. The long-term liquidity shows a growth in debt as the profit margin of branches continue to decline. StilSim is in need of a strategy to invest in the company, lower its debt and improve its profit margin.
Asset management describes how efficiently an organization uses its assets to generate sales (Dess, McNamara, & Eisner, 2016, p. 447). The two asset management ratios that are used to compare StilSim to the competitor, StaffAces, are receivables turnover ratio and days in receivables ratio.
Receivables Turnover Ratio and Days in Receivables Ratio.
The receivable turnover ratio is used to determine how quickly StilSim collects on a sale. The receivable turnover ratio is determined by diving sales by account receivables. StilSim’s receivable turnover ratio in 2016 was 3.0. This means StilSim collected on sales 3 times a year. StaffAces receivable turnover ratio in 2015 8.4 (Franklin University, 2013). They collected on sales …show more content…
8 times a year.
Days in receivables ratio determines how many days after a sale it takes to collect on it. To determine the days in receivable divide 365 days by receivable turnover. StilSim’s days in receivable ratio in 2016 was 120 days. Therefore, on average, StilSim collects on its sales in 120 days. StaffAces days in receivable ratio in 2015 was 44 days. Strength or Weakness. As seen in the chart below, this is a weakness for both companies but especially for StilSim. It is taking on average 120 days for StilSim to collect once a job has been completed. They are completed the work and then waiting 3 months to get paid for the job. This is also a weakness for StaffAces. Although not quite as big as a weakness as it is for StilSim. StaffAces could improve the time it takes to collect once they have complete a job for a client.
Dividend Payout vs. Retained Earnings Ratios. Dividend payout is the amount paid regularly to stockholders by a company out of its total net income (Finance Formulas, n.d.). In 2016, StilSim paid out $224,111 in dividends. StaffAces did not pay any dividends. Retained earnings is the percent of net earning not paid out in dividends (Investopedia, n.d.). StilSim retain earnings in 2016 was $900,163. StaffAces retain earnings in 2015 was $3,913,260. Strength or Weakness. StilSim’s dividends are a weakness. The company is paying out more in dividends than the net income. StilSim’s net income in 2016 was $79,145 and the company paid $224,111 in dividends. The company is cutting into previous net income earnings. This is not retainable as the company eventually will not have cash to pay.
Profitability Measures
Profitability measures are the best well known and most used financial ratios. These ratios are used to determine how well a company uses its assets and the efficiency of its operations (book 448). To determine a company’s profit margin the net income is divided by sales.
Profit Margin trend between StilSim and competitor.
StilSim’s profit margin in 2016 was 2.3%. This means StilSim generates a little over 2 cents in profit for every dollar in sales. StaffAces profit margin in 2015 was 2.7%. This means StaffAces generates almost 3 cents in profit for every dollar in sales. Strength or Weakness. The below chart of the profit margin of StilSim and StaffAces shows the trend of the two companies. The profit margin for StilSim is a weakness. The profit margin was much higher in 2011and 2012 at 14.9% and 15.5%. In 2013, the profit margin started to decrease and has continued to trend down since. StaffAces profit margin is low but has increased every year since 2011. It is desirable for both companies to have a relatively high profit margin.
ROA & ROE comparisons between StilSim and competitor. “Return on assets (ROA) is a measure of profit per dollar of assets” (book 449) The ROA is calculated by dividing the net income by total assets. “The return on equity (ROE) is a measure of how the stockholders fared during the year” (book 449). The ROE is called by dividing the net income by the total equity. In 2016, StilSim’s ROA was 2.1% and ROE was 2.7%. StaffAces ROA was 2.7% and ROE was
11.4%. Strength or Weakness.
StilSim’s ROA and ROE is a weakness. Both ratios have been in a decline trend. In 2011, StilSim’s ROA was 12.5% and ROE was 14.3%. Year after year both the ROA and ROE has trended downward. In 2016, the ROA was 10% lower than 2011 and the ROE was over 11% lower than 2011. StaffAces ROA and ROE are in much better shape than StilSim’s. Both ratios have been in an incline trend. In 2011, StaffAces ROA was 1.7% and ROE was 3.1%. In 2016, the ROA for StaffAces was 4.5% higher than 2011 and the ROE was over 8% higher than 2011.
Branch profitability comparison.
Capital City revenue in 2016 was $1,571,866. This was a decline from 2011 when it was 1,930,425. Lakeside revenue in 2016 was $935,431. Lakeside revenue in 2016 was also a decline as in 2011 the revenue was $1,178,909. Mountainview revenue was $629,429 in 2016. This was from it 2011 revenue of $875,00. All three branches of StilSim has seen a decline in revenue since 2011. As soon in the below graph Capital City is below the other two branches profit margin.
As seen in the below chart Capital City is below the other two branches profit margin. Capital City profit margin has been in a steady decline over the years but has improved slightly from 2015 to 2016. The profit margin for Capital City started at 14.95% in 2011 and declined over the years to -3.1% in 2016. Lakeside profit margin has also been in a steady decline. The profit margin for Lakeside start at 19.9% in 2011 and has declined over the years to 6.8% in 2016. Mountainview profit margin as also seen a decline. The profit margin for Mountainview started at 22.33% in 2011 and decline over the years to 6.7% in 2016.
Implications.
As soon in the above charts StilSim is in financial trouble. The short-term liquidity ratios, current ratio and cash ratio, show the company is making investments back into the company. This could be used to work on the company’s long-term liquidity issues. StilSim’s total debt continues to grow but the profit margin continues to decline. The company needs to make improvements to be able to offer the same services as the competitors or offer services that makes the company stand out. The receivable turnover and days in receivables needs reduced as these two ratios are very high. StilSim is not collecting on it sales as often as they should be collecting. Dividends are another issue seen at StilSim. The company is paying more in dividends than available cash in net income. The company will eventually run out of funds. Do to all the financial decline the ROE and ROA are in a decline and all branches of StilSim has seen a large decline in profit margins. These implications show that StilSim is need of a proper strategy to increase it financials and to continue to stay in business.
Summary of Financial Performance Interpretation This financial interpretation shows that StilSim needs to make big improvements. The short-term liquidity shows the company has cash and assets that can be used to improve the company. The long-term liquidity shows a growth in debt as the profit margin of branches continue to decline. StilSim is in need of a strategy to invest in the company, lower its debt and improve its profit margin.