FINM2400- Strengths & Weaknesses Analysis

1. Inventory Turnover
This refers to the efficiency of a company to take the
inventory held, and turn it into sales. The inventory turnover ratio
reflects the liquidity of a companys inventory. It is an important
statistic to examine, as the longer you hold inventory, the less profit
is coming in, as available sales arent being made. The companys
being examined below should, whilst being compared with each
other, also be compared with industry levels, to get an equitable
reflection.
a. MAL- 3.39 (107.73 Days)
i. This turnover, from a purely statistical analysis,
suggests strong sales, as this ratio shows that inventory
is being turned over relatively quickly, approximatelyevery 107.73 days, showing a comparably lower
holding of stock, to BLX.
b. BLX- 1.42 (257.36 Days)
i. This turnover reflects weaker sales, inventory is held
onto for a long period of time, approximately 257.36
days, before it is sold. This is a troubling ratio to find as
BLXs main sales revolves around lighting. Lighting is
somewhat of a large competitive field, with a number of
non-specialist lighting stores available to supply lighting,
and the afore mentioned turnover ratio reflects poor
performance from BLX. The effectiveness of buying can
be seen as considerably poorer in the BLX company
compared with MAL.
2. Current Ratio
This reflects the liquidity of a company, in essence, its ability to
turn assets into cash, in order to pay its short term liabilities. In
order to have the ability to pay back liabilities, the current ratio
must be greater than 1.
a. MAL- 1.23
i. It can be seen with a current ratio of 1.23 that MAL
would, if needed be able to account for their liabilities
that they have on the books. A rating close to 1
however, reflects the issue that if things were to shift for
the worse, MAL would comparably be under greater
pressure to maintain a positive current ratio.
b. BLX- 1.57
i. The current ratio of 1.57, this enables BLX to be in a
position where they would easily be able to account for
their liabilities, with much less apprehension than MAL
would. It shows BLX to be a comparably safer business
when linked with their ability to pay liabilities.
3. Total Debt Ratio

This compares a companys total debt against its total assets and
provides an indication of how the company is financed (either
borrowed money or equity). MALs total debt ratio is 0.66, which
means they are using 66% debt. Therefore, MAL has more
leverage and a higher risk when compared with BLX (47%). The
use of high debt could be considered risky as interest repayments
will still need to be paid regardless of profitability.
4. EBITDA ratio
This ratio stands for a companys capability of making profit by
comparing its earnings before interest, taxes, depreciation and
amortization. It is a common way to calculate the business value
because it will not be affected by non-cash expenses, for example,
depreciation and amortization. It is calculated using the formula of
dividing EBITDA by Enterprise Value. The EBITDA ratio of MAL is
4.3160 whereas that of BLX is only 1.0017. A lower ratio suggests
that the company probably has a high capability to make more
value, which means it spends less money for the same amount of
earnings. Therefore, BLX company might be much stronger to in this
part than the MAL.