CHAPTER 12
Profitability [7] The return on capital employed in 2012 is 11.79%. This is expected to increase to 12% in
2013.This is above the rate of return from a risk free investment of approximately 3%. Debenture holders will be pleased as the rate is also above the debenture interest rate of 10%.
State of Affairs
Liquidity [7] In 2012, Ryan Holdings plc has a quick ratio of 0.41:1. This means that for every €1 of current liabilities, Ryan Holdings plc has €0.41 in current assets. This is below the recommended ratio of 1:1. This means that Ryan Holdings plc finds it difficult to pay its short term debts as they fall due. However, in 2013 the quick ratio is anticipated to improve to 0.85:1. Although it is still below the recommended ratio of 1:1, the debenture holders will be pleased with the improving trend. The debenture holders will be concerned that Ryan Holdings plc remain to be overtrading and thus affecting their ability to cover its day-to-day expenses such as interest repayments.
Gearing [7] In 2012, Ryan Holdings plc’s gearing is at a rate of 39.31%. It is expected to be 25% in 2013. Both years the company is lowly geared. Debenture holders will be pleased that the company is lowly geared as this affects their ability to repay debentures. Lowly Geared means that finance comes more from Equity Capital. Interest on debentures has to be paid whilst Ordinary Dividends does not. The interest cover is 5 times in 2012 and this is expected to remain the same in 2013. Debenture holders will be pleased with this trend as it shows a continued ability to make interest repayments into the future.
Security – Real Value of Fixed Assets [7] The debentures are secured on the Fixed Assets. This means that the assets act as security if the company fails to repay its loan. This is why the debenture holders are interested in the real value of the fixed assets. The investments cost €50,000. However, the market value has improved to €75,000. This shows good management of resources. Therefore the debenture holders will be pleased. Ryan Holdings plc
has Tangible Assets of €600,000. This is greater than that of the 10% debenture. Therefore the debenture holders will feel secure knowing that there is enough security for their loan.
Prospects of the Company
Value of Shares The share price is expected to improve from €1.20 in 2012, to €1.40 in 2013. This shows an air of confidence in the company by the market and may encourage further investment in Ryan Holdings plc.
Sector [5] The fashion industry is very competitive due to increased cost of production (increased cost of cotton, unfavourable exchange rates, increased cost of oil and increased carriage rates from the Far East). There are also large numbers of competitors in this sector. Selling prices are under constant pressure due to a reduction in consumers’ disposable income. An increased cost of production and falling selling prices affect Gross Profit Margins.
(c) Advice on Actions to be taken
Ryan Holdings plc’s acid test ratio of 0.41:1 is below the recommended ratio of 1:1 in 2012. Although it is expected to improve it is still expected to remain below the recommended ratio in 2013 at a rate of 0.85:1. Ryan Holdings plc has a liquidity problem. It is overtrading as their Current Liabilities are greater than their Current Assets. The following examples highlight how an improvement can be made so that they will be in a better position in 2013 to repay their short term debts as they fall due: [3] 1 Pay out lower dividends. Only pay preference dividends. [3]
2 Ryan Holdings plc can issue more Ordinary and Preference Share Capital. It can issue a further 100,000 in both. [3]
3 Sell investments rather than acquiring debentures. [3]
4 Diversify into different fashion niches. [3] 5 Reduce debtor’s days. Try to collect debt from debtors. Give incentives for debtors to pay.
6 Improve gross profit % by reducing cost of sales. 12
171
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168 |
Page 169 |
Page 170 |
Page 171 |
Page 172 |
Page 173 |
Page 174 |
Page 175 |
Page 176 |
Page 177 |
Page 178 |
Page 179 |
Page 180 |
Page 181 |
Page 182 |
Page 183 |
Page 184 |
Page 185 |
Page 186 |
Page 187 |
Page 188 |
Page 189 |
Page 190 |
Page 191 |
Page 192 |
Page 193 |
Page 194 |
Page 195 |
Page 196 |
Page 197 |
Page 198 |
Page 199 |
Page 200 |
Page 201 |
Page 202 |
Page 203 |
Page 204 |
Page 205 |
Page 206 |
Page 207 |
Page 208 |
Page 209 |
Page 210 |
Page 211 |
Page 212 |
Page 213 |
Page 214 |
Page 215 |
Page 216 |
Page 217 |
Page 218 |
Page 219 |
Page 220 |
Page 221 |
Page 222 |
Page 223 |
Page 224 |
Page 225 |
Page 226 |
Page 227 |
Page 228 |
Page 229 |
Page 230 |
Page 231 |
Page 232 |
Page 233 |
Page 234 |
Page 235 |
Page 236 |
Page 237 |
Page 238 |
Page 239 |
Page 240 |
Page 241 |
Page 242 |
Page 243 |
Page 244 |
Page 245 |
Page 246 |
Page 247 |
Page 248 |
Page 249 |
Page 250 |
Page 251 |
Page 252 |
Page 253 |
Page 254 |
Page 255 |
Page 256 |
Page 257 |
Page 258 |
Page 259 |
Page 260 |
Page 261 |
Page 262 |
Page 263 |
Page 264 |
Page 265 |
Page 266 |
Page 267 |
Page 268 |
Page 269 |
Page 270 |
Page 271 |
Page 272 |
Page 273 |
Page 274 |
Page 275 |
Page 276 |
Page 277 |
Page 278 |
Page 279 |
Page 280 |
Page 281 |
Page 282 |
Page 283 |
Page 284
