Case Report Essay Example
Celebrations and Memories Ltd. (CML)
Current Situational and Future Growth Opportunities Analysis
By: Robyn Berg, CMA (1072063)
For:
Gordon Hoops
&
Chris Mantha
Executive Summary
Introduction
MCL has been operating successfully for decades, but as times change, now they are finding themselves in a situation which requires in mediate action.
Situational Analysis
Even though MCL is still profitable, the ratios calculated (Appendix 1) indicate that the company is not very liquid, and is in risk of becoming insolvent.
CML’s liquidity ratios all fall below the commonly acceptable. For example, the quick ratio for 2011 is 0.11, when the acceptable is 1.
In addition, according to the leverage rations, CML has too much debt, and not enough equity. The Industry recommends a ratio of 2:1, with no more than one-third of debt in long term. When compared to the industry recommended levels, CML levels of debt are too high, they have 3.26 Total debt to equity ratio in 2011.
The company's profitability is decreasing. In 2011 only .013% of sales was kept as net income. This could mean that overhead costs are too high, and operational efficiency should be achieved. When compared all ratios year over year, the profitability has been decreasing. ROI ratio went from 12.77 in 2008 to 4.31% in 2011.
CML has been successful at doing what they do, and how they have been doing it, but they are aware that they need certain changes in order to keep up with the trends and the market. A full SWOT analysis has been undertaken, and can be found in appendix 2.
The board of directors have set the following goals: • Increase revenues and gross profit margins, and decreasing expenses. • Required return 9% • Increase the company’s after-tax earnings per share to at least $6.25 by 2014 and, at the same time, continue to repay Durand’s shareholder loans at a rate of $30,000 per month.
Current Situational and Future Growth Opportunities Analysis
By: Robyn Berg, CMA (1072063)
For:
Gordon Hoops
&
Chris Mantha
Executive Summary
Introduction
MCL has been operating successfully for decades, but as times change, now they are finding themselves in a situation which requires in mediate action.
Situational Analysis
Even though MCL is still profitable, the ratios calculated (Appendix 1) indicate that the company is not very liquid, and is in risk of becoming insolvent.
CML’s liquidity ratios all fall below the commonly acceptable. For example, the quick ratio for 2011 is 0.11, when the acceptable is 1.
In addition, according to the leverage rations, CML has too much debt, and not enough equity. The Industry recommends a ratio of 2:1, with no more than one-third of debt in long term. When compared to the industry recommended levels, CML levels of debt are too high, they have 3.26 Total debt to equity ratio in 2011.
The company's profitability is decreasing. In 2011 only .013% of sales was kept as net income. This could mean that overhead costs are too high, and operational efficiency should be achieved. When compared all ratios year over year, the profitability has been decreasing. ROI ratio went from 12.77 in 2008 to 4.31% in 2011.
CML has been successful at doing what they do, and how they have been doing it, but they are aware that they need certain changes in order to keep up with the trends and the market. A full SWOT analysis has been undertaken, and can be found in appendix 2.
The board of directors have set the following goals: • Increase revenues and gross profit margins, and decreasing expenses. • Required return 9% • Increase the company’s after-tax earnings per share to at least $6.25 by 2014 and, at the same time, continue to repay Durand’s shareholder loans at a rate of $30,000 per month.