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STRONG TIE LTD

Evaluation of financial condition By Freaky Managers

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STRONG TIE LTD CASE - FREAKY MANAGERS

OVERVIEW
1946 Bill Johnstone (Family owned) Manufacture standardized and customized structural connectors.
NAME RESPONSIBILTY

David Johnstone
Ellen Johnstone Elizabeth Johnstone

CEO
Product design and Production Marketing, Sales and

Distribution
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Audrey Johnstone

STRONG TIE LTD CASE - FREAKY MANAGERS

Companys Finance

DESIGN
Standardized Connectors Architects, Draftsmen, Builders. Less human intervention Customized Connectors Customer Labour Intensive Generated array of new standardized connectors improved on the existing

Innovative solutions addressed newly identified industry


needs.
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COMPETITORS AND ADOPTED POLICY


Market Share
10%

Strong Tie

Sales Net 60 Purchase terms 2/10

30% 60%

Universal Connector 5 Chinese Producer

Attempted to adopt just-in-time Paying generous wages Heavy investment in factory automation
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CURRENT RATIO
Current Ratio = Current Assets/Current liabilities Higher the CR, greater the short-term solvency
2006 5.01 2007 4.29 2008 3.13 Industrial Average 4

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STRONG TIE LTD CASE - FREAKY MANAGERS

CASH RATIO
Cash ratio = Cash + Bank Balance / Current liabilities Checks the ability of cash and bank balance to meet the current liabilities
2006 0.15 2007 0.071 2008 0.033 Industrial Average 0.5

Lesser the cash ratio, lesser the ability to meet uncertainty


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RAW MATERIALS TURNOVER


Raw material turnover = COGS/Avg. raw materials Reflects the rate of utilization of raw material Higher the RMT, more efficient the management of inventories Raw materials turnover in days =365/RMT
2006 35.82 DAYS
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2007 36.25 DAYS

2008 41.91 DAYS

Industrial Average 31 DAYS


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STRONG TIE LTD CASE - FREAKY MANAGERS

WIP TURNOVER
WIP turnover = COGS/Avg. WIP Higher the ratio, lower the inventory accumulation
2006 6.98 DAYS 2007 5.16 DAYS 2008 2.75 DAYS Industrial Average 3 DAYS

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STRONG TIE LTD CASE - FREAKY MANAGERS

FINISHED GOODS INVENTORY TURNOVER


FG inventory turnover = COGS/Avg. finished goods High holding period is not good, it leads to higher working capital requirements
2006 70.87 DAYS 2007 56.93 DAYS 2008 44.3 DAYS Industrial Average 51 DAYS

Just-in-time production basis

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STRONG TIE LTD CASE - FREAKY MANAGERS

A/R TURNOVER
A/R turnover = Net sales/Avg. A/R Indicates the speed at which the receivables are collected Shorter the period, better the trade credit management
2006 73.3 DAYS 2007 70.06 DAYS 2008 69.79 DAYS Industrial Average 63

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A/P TURNOVER
A/P turnover = COGS/Avg. A/P
2006 18.66 DAYS 2007 16.44 DAYS 2008 15.93 DAYS Industrial Average 11 DAYS

2/10 NET 60

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CASH CONVERSION CYCLE


Cash conversion cycle = Inventory turnover + A/R turnover A/P turnover
2006 168.36 DAYS 2007 151.94 DAYS 2008 142.6 DAYS Industrial Average 137 DAYS

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FIXED ASSETS TURNOVER


Fixed Assets turnover = Net sales/ Avg. fixed assets Indicates how well the business is using its long-term assets to generate sales Higher the ratio, effectively utilized FA investments
2006 2007 2008 Industrial Average

4.61

4.11

2.82

4.1

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TOTAL ASSETS TURNOVER


Total assets turnover = Net Sales/Avg. Total assets Indicates the efficiency of assets utilization
2006 1.413 2007 1.46 2008 1.32 Industrial Average 1.7

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LONG TERM DEBT TO CAPITALIZATION


Long term debt to capitalization = LT Liabilities/ [LT Liabilities + Equity]
2006 32.28% 2007 32.88% 2008 37.89% Industrial Average 35%

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GROSS PROFIT MARGIN


Gross profit ratio = Gross profit/Net sales * 100 Indicates the efficiency Higher GP ratio is a sign of success
2006 35.52% 2007 31.48% 2008 27.58% Industrial Average 32%

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OPERATING PROFIT MARGIN


Operating profit margin = operating profit/Net sales * 100 Reflects the operating efficiency of the firm
2006 14.23% 2007 9.42% 2008 2.52% Industrial Average 16%

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NET PROFIT MARGIN


Net profit ratio = Net profit/Net sales * 100 Measures efficiency of production, pricing, administration, selling, financing and tax management
2006 8.99% 2007 5.47% 2008 0.042% Industrial Average 10%

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RETURN ON ASSET
Return on asset = net income/Avg. Total asset * 100
2006 12.7% 2007 8.01% 2008 0.06% Industrial Average 17%

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RETURN ON EQUITY
Return on equity = Net income/Avg. equity * 100 Measures the profitability of equity funds invested
2006 21.76% 2007 13.79% 2008 0.101% Industrial Average 28%

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