Finance - Case Study

Situation - Computron (expansion Program) A. Sales have been below forecasted numbers B. cost have been higher than projected C. They suffered a profit loss instead of a gain D. Management, investors and directors are concerned. E. It'd tsking s long time for dvertisement programs to get across all business units, including sales and operations

Problem - Computron is faced with alot of problems that have impacted their business and caused them to suffer financially. Looking at some of their financial ratio will help give understanding to some of their immediate concerns.

Problem 1 - low liquidity (current Ratio)
In 2007, Computron liquidity dropped significantly from the previous year. Their …show more content…

The company could face legal action from their creditors. Since Computron's sales are lagging, it's imperative for them to resolve their inventory issues to make sure operating income increases.

Profitability Ratios
Profit Margin - The company is projecting profit margin to be at 4%, which is comparable with the industry standard. The company must control their cost and hope that their new investment project will generate good sales. At the projected profit Margin percentage, they would make 4 cent on every dollar of sales.
Basic Earning Power - .06 -industry17.8%
Computron's inability to utilize their assets efficiency has caused them to lose earning power with other companies in the industry . They're not obtaining a huge return on their assets that has direct impact on their stock price and investor's confidence.

Computron is not an attractive company to investors due to their low ROA and ROE financial ratios. Their return on assets is projected to be at 7%, which is two points below the industry average. This indicative of poor utilization of assets and increased costs due to running at low efficiency levels. The company held on to large amount of inventory for prolonged length of time, waiting for direction from the advertising