Question

Company name: ikeGPS Group Ltd

Discussion

Profitability

Introduce why it is important to assess profitability

Outline the basic ratios used to assess profitability, and provide an analysis of your selected company’s profitability

Refer to the appendix where you have calculated or obtained the relevant profitability ratios, and your graph.

You could show the graph in the main body of the report rather than the appendix if you like – however, if you have the graph in the main body, you do need to discuss it!

Briefly comment on the trends shown by the ratios, and in the graph

Conclude as to whether or not this company is profitable

300 – 350 WORDS

Liquidity

Introduce why it is important to assess liquidity

Outline the basic ratios used to assess liquidity, and provide an analysis of your company’s liquidity position relative to the previous year

Refer to the appendix where you have calculated or obtained the relevant liquidity ratios

Conclude as to whether or not this company is demonstrating good liquidity

300 – 350 WORDS

Financial Structure

Introduce why it is important to assess financial structure (or gearing)

Outline the basic ratios used to assess financial structure, and provide an analysis of your company’s financial structure relative to the previous year

Refer to the appendix where you have calculated or obtained the relevant financial structure ratios

Conclude as to whether or not the company shows a strong financial structure

300 – 350 WORDS

Future plans and Investor informationFuture PlansDiscuss what plans the company has announced to the public, and how these have impacted on the share price. This information can be found from a variety of sources:

Annual report

NZX company research

Newspaper article (preferably recent articles)

Investor Information

Introduce why it is important to assess investor information

Outline the basic ratios used to assess investor information, and provide an analysis of the trends shown in ‘share price performance’ graph

Refer to the appendix where you have calculated or obtained the relevant ratios, plus graph

Alternatively, the graph can be displayed in the main body of the report

Conclude as to whether or not this company would be a good investment

You must include a discussion on income vs growth

300 – 350 WORDS

Conclusions & Recommendation

Pull together the main points made from each part of the discussion

Conclusion should not have any new information

Make a recommendation to the prospective investor

You can recommend to buy shares, or not to buy shares in the company being investigated

Recommendation must clearly flow from the discussion and conclusions

200 – 250 WORDS

(Use NZX website, from its financial profile, we could get this chart for 4 years.)

Annual report from NZX website, is used to analysis this company.

Answer 1

It is important to assess profitability as it helps in knowing about the financial health of the business. The level of profitability helps in assessing the ability of the company to generate return on their investment. The assessment of profitability is the most important measure for the achievement of success in the business. Thus it helps in knowing how the funds have been utilized in the company.

There are ratios that are used to assess the profitability of the company are:

• Operating profit ratio: This ratio helps in assessing the marginal profit of the company from the revenues of the company.
• Net profit ratio: This is the net profit earned in the company and thus helps in knowing the level of overall profitability.
• Return on assets: This ratio helps in understanding the level of profits earned from the assets.
• Return on equity: This ratio specifies the amount of profits earned by way of the equity capital investment in the company.
• Earnings per share: This ratio specifies the amount of profits on per share of the company.

The table showing different profitability ratios for last two years

Particulars	2017	2018
Operating margin	-10.70%	-6.32%
Net margin	-10.73%	-6.73%
Return on assets	-79.9%	-59.88%
Return on equity	-89.85%	-72.43%
Return on invested capital	-90.43%	-72.22%
Earnings per share	-0.18	-0.09

Graphs of ratios:

The company had operating loss in the last two years but the amount of operating loss had declined which shows that company is taking up steps in order to improve operating efficiency.

The company had earned net loss from last two years which shows that the overall profitability is very low in the company.

The company is earning negative return on assets which shows that the company is not generating effective return on assets.

The company is generating losses on equity but the level of loss had reduced. Thus it shows that effective return is not provided to shareholders.

The return on invested capital is negative which shows that the company is not effectively using its profits.

The earnings per share is negative from last two years which shows that new shareholders will not be attracted towards the company.

Analysis of the profitability

The profitability of the company is very low and is earning losses from last two years. The company needs to take up steps in order to improve the level of revenue and profitability so that it can achieve growth in the company. Thus the profitability is very low and hence the level of investment in company will decline and thus may hamper growth of company.

Conclusion

The company is not profitable and it is earning losses.