Financial health of Beumont Essay.

Financial health of Beumont Essay.


As per my understanding, Beumont has taken a positive step by attempting to expand its operations and grow. However, the short-term impacts of such a move could create a negative impact on the balance sheet, but there are obvious advantages and goals the firm can achieve in the long-run by following such a strategy. According to the information provided, the short-term financial health of Beumont has degraded, due to the rise in current liabilities, which is indicated by a decrease in the Working capital of the firm.


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However, for an asset, to start generating revenue to its maximum capacity some time will be required, i. e. Beumont shouldn’t expect instantaneous returns from these investments. However, an encouraging sign for Beumont is the steady Asset Turnover ratio it has been able to maintain. The company still maintains a debt-equity ratio of 0. 36, which indicates that Beumont has relied more heavily on equity than on debts to finance their new plant assets. The liquidity ratios, however, are an indication of the fact that the company still has some reserve cash or liquid assets.


Overall, we can concur that the company’s liquidity is pretty good, which is why it might not have been very difficult for Beumont to attract creditors. However, Beumont can improve upon its inventory turnover ratio. Currently, its inventory is sold 2. 6 times a year approximately. But considering the expansion in 2007, they should be able to improve this ratio in the years to come. One positive sign for Heighway Co. is the slight increase in the Asset Turnover ratio, which shows that the new plant assets acquired have paid off, and are generating more revenue. 33 Heighway

Answer (a) Ratios for 20X4 Return on Investment Ratio = net profits before tax / shareholder’s equity = 16,500,000 / 73,200,000 = 0. 225 Net Profit Margin = Net Income / Sales = 8,300,000 / 185,000,000 = 0. 04 Total Asset Turnover = Sales / Average total assets = 185,000,000 / [(114,000,000 + 132,400,000) / 2] = 1. 50 Current Ratio = Current Assets / Current Liabilities = 11,900,000 / 9,200,000 = 1. 49 Total Debt ratio = Total Liabilities / Total Assets = 49,200,000 / 132,400,000 = 0. 37 Ratios for 20X3 Return on Investment Ratio = net profits before tax / shareholder’s equity

= 18,000,000 / 70,600,000 = 0. 25 Net Profit Margin = Net Income / Sales = 10,400,000 / 180,000,000 = 0. 06 Total Asset Turnover = Sales / Average total assets = 180,000,000 / [(114,000,000 + 132,400,000) / 2] = 1. 46 Current Ratio = Current Assets / Current Liabilities = 13,600,000 / 8,400,000 = 1. 62 Total Debt ratio = Total Liabilities / Total Assets = 43,400,000 / 114,000,000 = 0. 38 Answer (b) Heighway Co. has made investments in 20X4, and these investments will take some time before they can start to generate substantial returns.

This is why the Return on investments (ROI) ratio has decreased slightly in 20X4. The profit margin has also decreased substantially from 6% to 4%, which is mainly because their operational income has decreased gradually, and also because the interest expense of the firm has increased. Heighway has constantly maintained a very healthy current ratio, although there has been a slight decrease in it. Total debt ratio has remained constant, as the firm still has 38% of debt relative to its assets. Answer (c) Customer Satisfaction – This is key to a servicing business, especially.

This is because there are no middlemen involved, and the service is directly consumed / experienced by the customers. Environment – The environment’s cleanliness is very important, especially for a company, whose core operation or business sector is transport. Not only do companies have to take care of the external environment outside, but also the environment within the passenger railway. Again the environment will indicate the quality of service of the firm. This would include all issues related to punctuality, cleanliness, safety and standard of facilities.

Management / Administration – Employees are critical to servicing businesses. Poor quality of service can be a result of an unmotivated employee, who in most cases is not able to build a good relationship with the firm, as in this case, which is why passengers complain about the service they are offered. The management needs to ensure they define strategies that enable feedback from the customers, so that they may act according to the demands and needs of the customers, and hire people who are motivated and committed to work and can relate themselves as part of the organization.