Financial Accounting Case Study

Analysis and Comment on Highlow Engineering

Profitability

Commenting on Highlow Engineerings profitability and referring initially to the primary coil measure of Return on Capital utilize (ROCE) we give notice see that the return is good (possibly a little low) besides does improve from 2002 to 2003.

Gross profit at 33.0 % in 2003 is excellent and shows a healthy year on year increase from 2001 onwards.

Overheads stick around steady at around 17 % throughout the distributor point (though at that place is a slight improvement between 2002 and 2003.

Distribution cost could be of some concern due to the marked up(a) movement between the years, these costs should be investigated to see if they argon justified or if there is some need for budgetary control.

Administration costs are favourable and good control is in place. Referring later to Average wage to employee it may be executable that the company has given low pay-rises over the last hardly a(prenominal) years and this again would need to be investigated to ensure there is not a disgruntled workforce.

Sales to gross capital employed is decreasing over the period as is sales to set(p) assets.

LIQUIDITY

Liquidity is an issue as there has been a steady (not sharp) marked decline in runniness and though we have not calculated the ability of the business to generate cash from merchandise operations we know it has declined relative to the ill-judged term debts of 2002 and 2003.

The liquidity problem may be a planned short term position and linked to the heavy purchases in vehicles and equipment in 2002 and 2003. The quick ratio being a little much stringent when checking liquidity shows the value moving towards 1, if the ratio becomes less(prenominal) than 1 then liquid current assets will not compensate current liabilities, which would further illustrate the potential liquidity problems in...

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