This report aims to provide recommendations to the board of directors at Speedy Deliveries Ltd. Speedy Deliveries Ltd is an overnight transporter of medical and laboratory equipment. This report aims to give appropriate insight to the board of directors prior to the upcoming annual general meeting. The objectives of this report are to discuss the liquidity, efficiency and financial gearing of the Speedy Deliveries Ltd. These objectives are measured against previous years of operations, Fast Go Deliveries Ltd - a competitor of Speedy Deliveries Ltd and also the averages of the industry. This report is limited by the financial data available.
Liquidity is the ability for a company to successfully operate in …show more content…
Accounts Receivable Turnover
The accounts receivable turnover measures the efficiency of the company in relation to the collection of short-term receivables.
- Throughout the period the turnover increased for Speedy Deliveries from 9 to 11 times. Accounts receivable are owed to the business and is therefore cash owned by the business. Lack of controls in place to ensure prompt collection of accounts receivable results in a decrease of the opportunities from cash.
- Both Fast Go and the industry as a whole have turnovers higher than Speedy Delivery, at 16 and 20 times respectively. This would further reinforce the idea of negligence on Speedy Deliveries part as other competitors in the industry do not have issues with consumers.
- The higher than average turnover rate explains the high current and quick ratios, as the revenue in accounts receivable is yet be collected but counted towards usable cash.
Number of Days in Collection Period
The number of days in the collection period measures on average how many days a company takes to collect the short-term …show more content…
Therefore relative to competitors Fast Go finances a majority of investments through owners’ equity, which leads to slower growth but a more stable financial gearing.
The interest coverage ratio measures how many times the company can cover the interest expense with net income.
- The interest coverage ratio decreased for Speedy Deliveries from 9 to 3 times. With an increase in net income for the period, this leads to the assumption of a substantial increase in the interest expense. This can be expected for a company financed substantially through debt as shown by the debt ratio.
- The investment in long-term assets within the period can skew the interest coverage ratio as return from investments is not instantaneous and the investment will allow for greater net income in future years.
- Fast Go only has an interest coverage ratio of 6 times with a debt ratio of
Growth is a vital aspect in remaining competitive in an industry. Investment in new projects creates growth. Investment is a risk financed through debt or owners’ equity.
To improve the liquidity, efficiency and financial gearing of Speedy Deliveries Ltd there must