DAS PLC is a large corporate firm that mainly deals with maintenance of aircrafts in the United Kingdom. Currently, it has a contract with a big public carrier (English Airways). The said contract draws a turnover of about 50% and an operating profit of about 60%. This is quite substantial stake; making the said national carrier, the single most business partner of DAS PLC.
The specific purpose of this report is to identify the DAS PLC current operations, its prospects for future profitability and to give an appropriate advice to key stakeholders as interested parties.
In regard to the availed documents by the company of the last three financial years and the two years’ average, the hypotheses which can be made from the results are as follows:
The company has more debtors than the actual cash collected
There was increase in inflation rates during the last trading period
The company was destined for losses in future and eventually total collapse, if appropriate measures are not taken immediately.
The above hypotheses form the basis of my research and ultimate conclusions of the same.
The data analysis from income statements of the last two trading periods shows various events. Here, operation expenses and total revenue collection increased, tax expense reduced and finance costs including total interest expense substantially reduced yet the total net profit for the year still reduced! In the balance sheet the value of total assets increased while that of the non-current one decreased. It is these gaps that trigger this exercise to unravel the real happenings.
The financial statements provided by the company therefore were the main sources of our literature review for this research. Others were financial and accounting text books or journals.
The methodology used in this task includes:
- Site visits
- Direct interviews (Management and Share holders)
- Literature review
- Data analysis and Interpretation
The data has been analyzed as follows:
There are clear discrepancies in the cash flow and profit statements. The differences are brought by the fact that cash flows show movement of cash dealings (operations), investments and financing dealings. Cash operations include current assets and liabilities, investing include plant, investments and equipment while financing has dividends and long-term financing.
In the income statement, total revenues increased by £ 1500000, inventory costs and total expenses increased by £ 2500000 and £100000 respectively. Operation profits, finance costs, un-taxed profits, tax expense and net profit for the year reduced by £2000000, £480000, £1520000, £360000 and £1160000 respectively.
Changes in the balance sheet exposed reduction in retained earnings and non-current assets values by £2000000 and £500000 respectively. However, there was increase in value of the total assets by £2880000. Cash flow values also showed varied results. Cash flow from operating and financing activities, reduced by £470000 and £920000 respectively. At the same time, Cash flow from investing activities increased by £650000.
In the analysis of inventories and receivables, there’s clear indication that there was an increment of £450 each in the balance sheet. The number of days taken to repay the debts and to receive monies owed also reflected some reduction (2 and 3 days respectively).
The data highlight reduction in percentage of 1% in return on capital employed (ROCE) and 2% on gearing ratios. Gross and operating profit margins reduced by 2% and 1% respectively. Current ratio improved from 1.3:1 to 1.4:1 during the two trading periods. Acid test ratio was 0.8:1 to 0.7:1 between 2010 and 2011. The analysis also reveal that there was no earnings per share in the last five years, while the last two trading periods has not yielded any cash from operations per share. Finally this sector’s price per earnings ratio is fourteen (14) as per the statements provided.
The site visits revealed some rather dilapidated fixed assets like buildings and machinery, leading to the depreciating values in non-current assets. Interviews with the management and key shareholders also revealed that parts used for servicing, valued at £800000 were lost through pilferage. This prompted the insurance company to refuse covering the big loss incurred! The company also got set-back. According to the information provided by the management, the inventory stolen had an advanced technology and their accidental acquisition by a rival company will be disastrous to DAS PLC. This is because it will damage the future profitability of the company.
Lastly, the present inventory includes stocks of parts and work in progress which have not been invoiced to clients. There are also additional debentures which were issued on July 2010, while the current share price is £792.