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Case Study: General Machinery Ltd
General Machinery manufactures computer numerical control (CNC) equipment for its customers who use the equipment in the manufacture of electronic circuit boards. Ratios have been calculated from annual reports for the last five years and are shown in Table 7.19. The Statement of Cash Flows is shown in Table 7.20.
TABLE 7.19Ratios.
2014
2013
2012
2011
2010
ROI
5.0%
3.2%
3.6%
6.2%
5.8%
ROCE
9.2%
7.1%
7.6%
6.4%
Operating margin
16.8%
13.9%
12.6%
15.7%
14.1%
Gross margin
70.0%
71.0%
72.0%
74.0%
75.0%
Overhead to sales
53.2%
57.1%
59.4%
58.3%
60.9%
Sales growth
11.4%
9.4%
6.7%
9.1%
Working capital
198%
360%
340%
368%
326%
Acid test
135%
287%
270%
275%
243%
Gearing
42.0%
40.5%
38.6%
36.5%
37.4%
Interest cover
182%
162%
202%
376%
517%
Asset turnover
48%
46%
44%
41%
Days' sales outstanding
60
63
68
70
73
Inventory turn
3.3
3.1
2.8
2.2
2.3
Days' purchases outstanding
78
88
102
105
111
Dividend per share
$0.036
$0.027
$0.025
Dividend payout ratio
48.4%
57.9%
49.0%
41.4%
45.7%
Dividend yield
3.0%
2.5%
4.5%
5.6%
EPS
$0.075
$0.047
$0.052
$0.088
$0.080
P/E ratio
16.0
23.4
19.3
9.1
8.2
General Machinery's Statement of Cash Flows is also shown for the last few years (Table 7.20).
TABLE 7.20Statement of Cash Flows.
Cash flow from operating activities
Cash receipts
772,000
700,000
635,000
595,000
Cash payments
-628,000
-601,000
-537,200
-503,000
Interest paid
-72,000
-60,000
-40,000
-25,000
Income tax paid
-17,700
-11,100
-12,240
-20,700
Net cash from operating activities
54,300
27,900
45,560
46,300
Cash flow from investing activities
Payments for property, plant & equipment
-200,000
-50,000
-
Net cash used in investing activities
Cash flow from financing activities
Proceeds from borrowings
50,000
Dividends paid
-20,000
-15,000
-14,000
Net cash from/used in financing activities
30,000
35,000
36,000
Net increase/(decrease) in cash
-115,700
12,900
31,560
26,300
Cash at beginning of year
135,700
122,800
91,240
64,940
Cash at end of year
20,000
1. Discuss the major issues facing the company.
2. Recommend what actions the company should take to improve its overall performance, addressing each of profitability, liquidity, gearing, activity, and shareholder return measures.
3. In what way does the Statement of Cash Flows help you to interpret the ratios and financial performance of the company?
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