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STRONG TIE LTDEvaluation of financial conditionBy Freaky Managers06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS1OVERVIEW1946 Bill Johnstone (Family owned)Manufacture standardized and customized structural connectors.NAMERESPONSIBILTYDavid JohnstoneCEOEllen JohnstoneProduct design and ProductionElizabeth JohnstoneMarketing, Sales and DistributionAudrey JohnstoneCompanys Finance06-12-20122STRONG TIE LTD CASE - FREAKY MANAGERSDESIGNStandardized Connectors Architects, Draftsmen, Builders.Less human interventionCustomized Connectors CustomerLabour IntensiveGenerated array of new standardized connectors improved on the existingInnovative solutions addressed newly identified industry needs.
06-12-20123STRONG TIE LTD CASE - FREAKY MANAGERSCOMPETITORS AND ADOPTED POLICYSales Net 60Purchase terms 2/10Attempted to adopt just-in-timePaying generous wagesHeavy investment in factory automation06-12-20124STRONG TIE LTD CASE - FREAKY MANAGERSCURRENT RATIOCurrent Ratio = Current Assets/Current liabilitiesHigher the CR, greater the short-term solvency
200620072008Industrial Average5.014.293.13406-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS5CASH RATIOCash ratio = Cash + Bank Balance / Current liabilitiesChecks the ability of cash and bank balance to meet the current liabilities
Lesser the cash ratio, lesser the ability to meet uncertainty
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS6200620072008Industrial Average0.150.0710.0330.5 RAW MATERIALS TURNOVERRaw material turnover = COGS/Avg. raw materialsReflects the rate of utilization of raw materialHigher the RMT, more efficient the management of inventoriesRaw materials turnover in days =365/RMT
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS7200620072008Industrial Average35.82 DAYS36.25 DAYS41.91 DAYS31 DAYSWIP TURNOVERWIP turnover = COGS/Avg. WIPHigher the ratio, lower the inventory accumulation
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS8200620072008Industrial Average6.98 DAYS5.16 DAYS2.75 DAYS3 DAYSFINISHED GOODS INVENTORY TURNOVERFG inventory turnover = COGS/Avg. finished goodsHigh holding period is not good, it leads to higher working capital requirements
Just-in-time production basis06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS9200620072008Industrial Average70.87 DAYS56.93 DAYS44.3 DAYS51 DAYSA/R TURNOVERA/R turnover = Net sales/Avg. A/RIndicates the speed at which the receivables are collectedShorter the period, better the trade credit management
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS10200620072008Industrial Average73.3 DAYS70.06 DAYS69.79 DAYS63A/P TURNOVERA/P turnover = COGS/Avg. A/P
2/10 NET 60
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS11200620072008Industrial Average18.66 DAYS16.44 DAYS15.93 DAYS11 DAYSCASH CONVERSION CYCLECash conversion cycle = Inventory turnover + A/R turnover A/P turnover
200620072008Industrial Average168.36 DAYS151.94 DAYS142.6 DAYS137 DAYS06-12-201212STRONG TIE LTD CASE - FREAKY MANAGERSFIXED ASSETS TURNOVERFixed Assets turnover = Net sales/ Avg. fixed assetsIndicates how well the business is using its long-term assets to generate salesHigher the ratio, effectively utilized FA investments06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS13200620072008Industrial Average4.614.112.824.1TOTAL ASSETS TURNOVERTotal assets turnover = Net Sales/Avg. Total assetsIndicates the efficiency of assets utilization
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS14200620072008Industrial Average1.4131.461.321.7LONG TERM DEBT TO CAPITALIZATIONLong term debt to capitalization = LT Liabilities/ [LT Liabilities + Equity]
200620072008Industrial Average32.28%32.88%37.89%35%06-12-201215STRONG TIE LTD CASE - FREAKY MANAGERSGROSS PROFIT MARGINGross profit ratio = Gross profit/Net sales * 100Indicates the efficiencyHigher GP ratio is a sign of success06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS16200620072008Industrial Average35.52%31.48%27.58%32%OPERATING PROFIT MARGINOperating profit margin = operating profit/Net sales * 100Reflects the operating efficiency of the firm06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS17200620072008Industrial Average14.23%9.42%2.52%16%NET PROFIT MARGINNet profit ratio = Net profit/Net sales * 100Measures efficiency of production, pricing, administration, selling, financing and tax management
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS18200620072008Industrial Average8.99%5.47%0.042%10%RETURN ON ASSETReturn on asset = net income/Avg. Total asset * 100
06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS19200620072008Industrial Average12.7%8.01%0.06%17%RETURN ON EQUITYReturn on equity = Net income/Avg. equity * 100Measures the profitability of equity funds invested06-12-2012STRONG TIE LTD CASE - FREAKY MANAGERS20200620072008Industrial Average21.76%13.79%0.101%28%
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