Acfi6004 Finance And Accounting For Business Sample

Introduction: Acfi6004 Finance And Accounting For Business

Profitability Ratio

Profitability Ratio

(Source: Halfords company. Com, 2023)

Gross margin

Gross margin is the level of income that surpasses the expense of products sold. It demonstrates the effectiveness of the creation and evaluation system (Endri et al. 2020). A gross margin ratio of 47.49% recommends Halfords deal with its creation costs (Halfords company. Com, 2023). Nonetheless, a correlation with industry benchmarks is important to survey seriousness. Thus, it is recommended that the firm needs to screen industry benchmarks and persistently look for cost-saving open doors underway.

Operating margin

Operating margin estimates the productivity of normal business activities, barring charges and interest (Bergamo et al. 20201). It mirrors the board's effectiveness in controlling expenses as per the gathered details and further interpretation. The operating margin of 2.76% demonstrates a somewhat thin margin as per the evaluation and analysis. A descending pattern might mean expanding functional costs or evaluating pressures. It is further suggested that the firm needs to assess and control functional expenses and investigate systems to improve income streams.

Pretax margin

The pre-tax margin addresses the level of every dollar of income that remains after all costs, however before charges. A negative value of the evaluated result indicates a loss. It is recommended that Halfords does not create adequate pay to cover working costs and interest. However, distinguish and address the underlying drivers of the negative pre-tax margin, like expense invades or declining deals. Execute cost-cutting measures.

Net profit margin

The margin of net profit estimates the level of income that remain with the firm as a parts as net gain after all costs, including charges (Napier, Stadler, 2020). While positive, the net revenue is generally low as per the interpretation of the evaluated result. This could be because of high duty costs or other non-working expenses affecting productivity. Therefore, it is crucial to inspect the parts influencing overall gain, like charges and non-working costs. Moreover, by enhancing charge procedures and smoothing out insignificant expenses the net profit margin of the firm might be improved easily.

Return on equity

The gathered knowledge further signifies that ROE indicates the return generated for each dollar of equity (Nazar, Mawarni 2023). It further mirrors how well a company utilizes shareholder equity to generate profits. In consideration of the evaluated value of ROE, it is perceived that ROE of 6.04% indicates moderate returns for shareholders. Thus, a higher ROE would be desirable for the firm as per the interpretation of the financial data. It is further recommended that by increasing efficiency in utilizing equity by improving profitability and exploring options like debt reduction or stock buybacks the esteem of ROE can be easily improved.

Return on assets

As per the gathered details, it is noted that Return On Assets quantifies the ability of an entity to generate earnings from its assets (Mudzakar, 2021). It further, indicates management efficiency in asset utilization by the firm to meet its goals and objectives and to complete its operations. As per the interpretation of the evaluated data, it is noted that an ROA of 2.50% suggests that Halfords is generating modest returns from its assets. Moreover, concerning the overall scenario and the financial report of the firm it is advocated that the firm needs to explore strategies to enhance asset efficiency, such as optimizing inventory levels or improving asset turnover.

Leverage Ratio

Figure 2: Leverage Ratio

(Source: Halfords company. Com, 2023)

Debt/Equity Ratio

The ratio of D/E evaluates the ratio of an entity’s financing that is generated from debt compared to equity (Hermawan 2023). Moreover, a debt/equity proportion of 0.54 further signifies that Halfords relies more on equity than debt for financing, suggesting a relatively conservative capital structure. The graphical representation further signifies a decreasing trend and the reason behind the reducing pattern is debt reduction, increased equity, or a combination of both. Moreover, it is perceived that though a lower debt/equity ratio is generally favorable, Halfords should carefully assess its capital structure to ensure it adequately supports growth and capital requirements. Hence, it is significant for an entity to compute the cost of debt versus the benefits of financial flexibility.

Debt/Capital Proportion

The debt/capital proportion expresses the proportion of an entity is a capital that it generates from debt. It is also evaluated by dividing total debt by the sum of total debt and shareholder equity (Ku?era, Vochozka, & Rowland, 2021). As per the interpretation of the evaluated result, it is noted that a debt/capital ratio of 0.35 suggests that 35% of Halfords' capital is sourced from debt. The reason that is identified behind the decreasing debt/capital ratio may be attributed to debt reduction or an increase in equity. In order to improve its financial stability it is further essential for an entity to resume monitoring the debt/capital ratio to maintain a balanced capital structure. Moreover, if the ratio decreases further, assess the impact on the cost of capital and financial flexibility.

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Equity Multiplier Ratio

The equity multiplier signifies the proportion of assets financed by equity (Li, 2022). It is quantified by dividing total assets by shareholder equity as per the gathered details. In accordance with the graphical representation and the evaluated result, it is opined that an equity multiplier of 2.41 indicates that Halfords' assets are 2.41 times larger than its equity (Halfords company. Com, 2023). Moreover, it is noted that the rising equity multiplier may result from an increase in total assets or a fall in equity. Hence it is recommended that the firm should assess the factors contributing to changes in the equity multiplier. However, if it continues to increase, evaluate the impact on return on equity (ROE) and consider strategies to optimize the balance between assets and equity.

Gearing Ratio

Under the gathered result, it is identified that the gearing ratio measures the proportion of the capital of an entity that comes from debt relative to equity (Akinrinola, Tomori, and Audu, 2023). Furthermore, it is evaluated by dividing total debt by the sum of total debt and equity. As per the graphical representation of Debt to equity ratio and further analysis, it is perceived that a gearing ratio of 0.22 indicates that 22% of Halfords' capital is sourced from debt. Therefore, it can be said that similar to the debt/capital ratio, a decreasing gearing ratio may result from debt reduction or an increase in equity. Concerning the leverage position of the firm as per the evaluated financial ratio it is advocated that it is essential for the company to maintain a balanced approach to capital structure. On the other hand, while a lower gearing ratio is generally positive, evaluate the repercussions on financial flexibility and cost of capital

Interest Coverage Ratio

The proportion of interest coverage quantifies an ability of an entity to manage its interest cost with operating profit of the firm. In consideration of the evaluated result, it is noted that an interest coverage ratio of 3.67 indicates that Halfords' operating income covers its interest expenses 3.67 times (Halfords company. Com, 2023). However, the rising interest coverage ratio may result from higher operating income or lower interest expenses (Syafrizal, Ilham, and Muchtar 2023). Hence, it is recommended that the firm should monitor the interest coverage ratio to ensure it remains at a level that provides financial security. Apart from that if the firm continues to enhance, assess the sustainability of the trend and consider reinvesting in growth or debt reduction.

Moreover, the leverage ratios for Halfords Group PLC demonstrate a balanced and conservative approach to financing. Furthermore, it has been identified that while maintaining a lower debt/equity ratio and gearing ratio is generally positive, it is crucial for the company to assess the impact on financial flexibility and cost of capital. Along with that the firm is also required to continue monitoring and a strategic approach to capital structure is key for long-term financial health.

Liquidity Ratio

Figure 3: Liquidity Ratio

(Source: Halfords company. Com, 2023)

Current ratio

The current ratio quantifies capability of an organization to manage short-term liabilities with its current assets (Yenni, 2021). A current ratio of 0.96 indicates that Halfords may face issues in meeting its short-term debts with its current assets (Wsj.com, 2023). The proportion is below 1, indicating potential liquidity challenges as per the gathered details and analysis. The current ratio might be reduced due to an increase in short-term liabilities or a decrease in current assets. This might be a result of factors such as enhanced debt obligations, slow inventory turnover, or a decline in receivables. Hence, it is recommended that the firm evaluate and manage short-term liabilities, negotiate favorable payment terms with creditors, and explore options to improve the efficiency of current assets, such as optimizing inventory management.

Quick/Acid-test Ratio

The acid-test proportion is determined as a more essential ratio of liquidity, eliminating inventory from short-term assets (Kumoro et al. 2020). It offers insight into a capability of an entity to meet short-term obligations with its most liquid assets. A quick proportion of 0.41 signifies a significant reliance on inventory to meet short-term obligations and debts, which may pose issues in situations requiring immediate cash (Wsj.com, 2023). The decline in the quick ratio might be attributed to slow inventory turnover or a reduction in other liquid assets like receivables. It is further essential to focus on improving the efficiency of receivables and inventory turnover. Apart from that it is also essential to consider strategies to convert inventory into cash more rapidly, such as promotions or discounts.

Cash Ratio

The cash ratio is advocated as the conservative liquidity metric, based on only cash and cash equivalents with short-term liabilities. A cash ratio of 0.09 signifies that Halfords has a minimal amount of cash and cash equivalents in comparison with its short-term obligations and debts (Wsj.com, 2023). The fall in the cash ratio may be attributed to low cash reserves or an increase in short-term liabilities (Zimon, Tarighi, 2021). Thus, an entity needs to strengthen cash management practices, explore options to generate additional cash through asset sales or financing and ensure that the company maintains an adequate cash cushion for unforeseen circumstances that might arise in the future.

Moreover, it is perceived that the liquidity ratios for Halfords Group PLC indicate potential challenges in meeting short-term obligations, with the current and quick ratios falling below the ideal thresholds. Furthermore, to address these concerns, the firm should focus on optimizing its current asset management, negotiating favorable payment terms, and maintaining a prudent cash position to navigate uncertainties in the business environment. Apart from that it also requires continuous monitoring and proactive management of liquidity are crucial for sustaining financial health.

Working capital Ratio

Figure 4: Working capital ratio

(Source: Halfords company. Com, 2023)

Inventory Days

Inventory days are determined as a financial metric that is utilized to measure the average number of days it takes for an entity to sell its entire stock in the market. It is further computed by dividing the average inventory by the (COGS) per day. An inventory days proportion figure of 112 days signifies the average number of days it is required for Halfords to sell its stock in the business market. In accordance with the evaluated result, it is opined that the reason behind an enhancement in inventory days may be attributed to slow-moving inventory or overstocking (Akinlabi, 2021). Moreover, the computation of inventory management practices is essential in the business to identify slow-moving items and optimize stocking levels. Along with that, it is also crucial to implement strategies like promotions or discounts to accelerate inventory turnover.

Account Receivable Days

Account receivable days underscore the days it needs for a firm to collect payment from clients (Nworie, 2023). The graph highlights that the figure of 56 days indicates the average time it needs Halfords to collect payment from its client. Moreover, the rise in accounts receivable days may be due to extended credit terms or challenges in timely collections. It is further recommended that the firm review credit policies and collection procedures. Apart from that the firm might also implement measures to shorten the collection cycle, such as offering discounts for early payment or tightening credit terms.

Account Payable Days

Account payable days quantifies the average days a company takes to pay its suppliers and it is computed by dividing the average accounts payable by the daily COGS. As per the interpretation, it is advocated that the figure of 98 days indicates the average time it takes for Halfords to pay its suppliers (Halfords company. Com, 2023). Moreover, the enhancement in accounts payable days may be a result of negotiating favorable payment terms with suppliers (Astvansh, Jindal, 2022). In consideration of the interpretation of the proportions it is ascertained that extending payment terms can provide short-term cash flow benefits, ensure it does not strain supplier relationships, or lead to increased costs. The firm might also compute the repercussions of discounts and consider balancing timely payments with cash management.

References

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