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Analysis of the Present Position of Jools Furniture Ltd - Essay Example

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Analysis of the Present Position of Jools Furniture Ltd

Time series analysis of Jool’s Product division shows unfavorable results, as out of five indicators four are showing negative results. Although current assets have increased in 2009 as compared to 2008 but increase in current liabilities is more as compared to current assets so division’s liquidity has decreased. Increase in inventory turnover shows that division is now more efficient in selling its inventory. While increase in debtor’s days shows that firm making more credit sales now and is inefficient in collecting its receivables and indicates that money is tied up in debtors. Decrease in creditor’s days shows that division’s credibility has decreased and its suppliers are allowing it less time to pay them back.
Division should take immediate actions to decrease its current liabilities which will not only increase its liquidity but will also increase its credibility in front of its suppliers and other stakeholders. Moreover firm should adapt any mechanism to quickly collect its receivables.
Asset turnover shows that division has ratio of 1.06 in 2009 which is higher than that in 2008 because the assets have increased but sales has also increased by a greater percentage. It shows that division is more quick in concerting its assets into sales now. Profitability analysis of the Jool’s Products division shows very favorable results as all of the profit indicators are showing highly favorable results which are not only good for division but will also contribute in overall profitability of Jools. But although the division is profitable but management should fix the problem of increasing current liabilities and should control operating expenses and receivables as it said by Gibson “ Even a very profitable entity will find itself bankrupt if it fails to meet its obligations to short term creditors”.(p.253) Kitchen Division Category Ratio 2009 2008 Result Liquidity Ratios Current Ratio 2.02 0.4 Favorable Quick Ratio 0.99 0.78 Favorable Stock Turnover 60.74 49.87 Favorable Debtor Days 15.52 18.17 Favorable Creditors Days 10.22 12.01 Unfavorable Efficiency Ratios Asset Turnover 2.20 2.33 Unfavorable Net working Capital Turnover 10.13 13.67 Unfavorable Profitability Ratios Net Profit Margin 3.51% 3.27% Favorable Operating Profit Margin 3.88% 3.61% Favorable Return on Assets 7.71% 7.62% Favorable Return on Equity 11.77% 11.90% Unfavorable Critical Analysis:- Time series analysis of Jool’s Kitchen Division’s liquidity shows favorable results. Division has a healthy short term obligations fulfilling ability. Inventory is efficiently sold, less credit sales are allowed and receivables are quickly collected. But in spite of its good liquidity conditions creditors are still allowing less time to pay back which is a matter of concern for management. Efficiency analysis of the ...Show more

Summary

The table given below in this case study presents the calculations from the information provided in the case study about furniture business. Then, explanations and justifications of the results are discussed with some suggestions for improvements…
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Analysis of the Present Position of Jools Furniture Ltd essay example
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