The culprit can be seen to be the ballooning of expenses. It should be noted that depreciation and amortization registers 165% growth while other selling and administration expense records higher growth of 178%. To make matters worse, finance costs more than tripled at 355% from 2003 to 2007.
Turning to the balance sheet accounts of the business organization, it should be noted that the mounting finance costs can be traced to the ballooning of assets which is unmatched by the growth in equity. This indicates that the company's acquisition of asset is financed by the more costly liabilities. Logically, when Best resort to its creditors to finance the acquisition of its assets, it incurs the obligation to pay interest at specific intervals thus boosting its finance cost. The company's cash account grew weakly at 18% during the seven-year period.
Table 2 highlights the financial ratios of Best from 2003 to 2007 utilizing the selected data provided. In terms of profitability, the year 2007 saw a decline both in return to assets and return to ordinary shareholders. It should be noted that this decline indicates the company's inability to create net income which adds to shareholder wealth and value to its assets. From the high return of shareholder's equity ratio of .25 in 2006, this slumped to .12 in 2007 meaning that for every dollar invested in the company's stocks, a shareholder gets 12 cents in 2007 compared to the 25 cents in 2006. Asset turnover also declined from 0.53 to 0.47 signaling lower asset utilization and possibly an inability to maximize the company's resources. Profit margin ratio is also in decline from .18 to 0.09. The decrease in profitability ratios from the good performance in 2006 can be an indication of company's difficulty of providing profits to its stakeholders.
Consistent with the observation above, the company's debt to asset ratio has steadily increased from 2003 to 2007. In fact, during 207 debts finance 65% of the company's assets leaving only 35% to Best's stockholders. Logically, this will mean that the company is paying off higher interest expenses which is also reflected in its dwindling times interest earned ratio.
The trend analysis and financial ratio analysis brings out problems in profitability together with the company's riskier resource structure which leads to mounting financial costs. It is recommended that the company particular focus in improving in these aspects through more efficient resource management and managing costs effectively.
However, since the analysis is only grounded in the selected financial data at hand, it should also be stressed that it does not show the complete picture. For one, the performance of Best should be benchmarked with its competitors in order to know where it stands. The slower performance in 2007 could also be brought be external factors which are beyond the business organization. Thus, understanding the trends in the business environment will also be important as well. In assessing and evaluating the performance of a company, quantitative and qualitative information should always be utilized hand in hand.