Trend analysis is the overall growth of the key financial statement aspects to include of the sales and income which is based on the original year of study. In our case, our analysis will be based on the previous year which clearly shows the trend of analysis within years.
year
Net profit
growth
percentage growth
2014
0.86
2015
0.42
-0.44
-51.1628
2016
0.3
-0.12
-28.5714
It is clear that the net profits continue to decline in years which can be attributed to several factors. Based on the analysis, it is evident that the profits have been declining at a significant level with those in 2015 declining by 51% based on the previous year and that of 2016 declining at 28% based on 2015. According to Drake (2010), having profits decline is normal but steady and consistency ones show serious problems which need to be solved as soon as possible. Failure to handle the problem can lead to a business closing in the long run which comes with the layoff of the employees (Innocent, 2013). One of the key causes of the continuous decline of profits is the inability of the firm to control the external factors which comprise of the economic downturn which affect the finances of the company or inability to manage the company efficiently (Gibson, 2010). In our case, it is evident that Charles and Lauren have not been able to manage the business efficiently which is attributed to the decline in the profits when they took over the management. It is evident that they have not been able to control both the internal and external factors.
According to Higgins (2012), the Net profit margin is the rate of profits to the revenue of the company. It is usually equal to the profits generated by a single dollar which is usually presented in percentage form. This is one of the financial analysis which can be used to tell whether the firm is growing healthy in term of finances or tracking whether the current practices in the organization are working or not. The net profit margin is calculated by the following formulae.
Net Profit Margin = Net Profit / Total Revenues
The net profit margin is growing with that of 2014 been 35, increased in 2015 to 36 and finally 37 in 2016. This is to mean that in 2014, 36% in every dollar earned by the organization is the profits. The increase in the net profit indicates that the firm is becoming healthier financially which can be attributed to the change in strategies despite the decline in the revenues. This is in form of laying off of the employees which reduce the cost of production that leads to the increase in the net profit margins.
Ratio analysis
Ratio analysis is a quantity information analysis which is used to discuss aspects of financial performance and company operations in aspects of solvency, liquidity, profitability, and efficiency. It is a useful management tool which tells on the financial results and the trend over time. The analysis is essential for evaluating whether the firm is deteriorating or improving within years. The information can also be essential in understanding the company performance in comparison with others in the common industry. This is categorized into six forms to include solvency, liquidity, efficiency, coverage, market-prospects and profitability ratios.
The profitability ratio is the rate at which the firm is able to generate profit from its invested capital. The ratio is in two forms to include the gross and operating profit margin.
The gross profit margin has been provided by the consultant and clearly indicates that the rate is stable with that of 2014 been 55, in 2015 been 56 and declining to 55 in 2016 (Gertler, 2010). This indicates that there is no significant change in the ability of the firm to generate revenues from the capital invested in the firm. Hence, there is need to improve in the productivity on the same.
Employee turnover and layoff
The employee layoff is the rate at which one of the employees leave the organization whether voluntary and involuntary and they are replaced in the organization by another individual. Layoff, on the other hand, is the temporary and permanent termination of the employees (Fridson, 2011). In our case, the number of employees leaving the organization can be said to be at a significant level. It has increased from three in 2014 to seven and then to 12 in 2016. The absenteeism percentage has also increased which can be attributed to the poor motivation of employees to work (Laudon, 2013). The laying off of some of the employees can also be said to have an effect on the productivity of the organization which is as a result of the decreased labor force. The turnover is indicated by the fact that despite having a layoff of employees, there is still some been hired in the organization (Lin, 2011). In 2015, it is evident that there was the recruitment of four employees and ten in 2016.
Employee productivity and efficiency
The employee productivity is basically the ability of the employee to handle tasks within a given time frame. In our case, the time frame is on an annual basis on which the employee spends in the workplace. The efficiency of the employee can be said to the ability of the employee to complete the task at a given time duration given the ideal time to complete it. The calculation of the efficiency is not a particle in this since no much information is provided on the same.
The employee productivity = annual output/average number of productive employees.
Year
output
no. of employees
employee productivity
2014
780000
50
15600
2015
6675000
47
14221
2016
666000
45
14800
From the above analysis, it is evident that the employees of productivity declined in 2013 and then increasing in 2016. This is an indication that there is instability in the satisfaction of employees; hence, their motivation to work is questionable. Hence, it is essential to empower the employees to enable them to improve their productivity.
Recommendations
From the above financial management, it is evident serious strategies need to be changed to ensure that the level of productivity increases which can be through motivating the employees as well as changing the strategies in place (Bohner, 2010).
The increase in profits can be only achieved if the costs are minimized, profits maximized with the efficiency of employees improved. The management should consider choosing strategies which will increase the cost while maximizing the profits (Salerno, 2017).
The following are some of the key strategies I would recommend to the organization so that they can improve their financial health.
Increasing productivity and efficiency of their staffs is one of the key strategy which should be adopted. It is evident that there has been a persistent layoff and turnover of productive staffs who may be of essential value to the organization (Ipcioglu, 2011). The turnover is expensive and time consuming since training a new employee to a point they will be as efficient as the laid-off one takes a lot of time. According to Maslow theory of motivation, self-actualization, esteem, belongingness, safety and physiological are the key needs to satisfy for employees to improve their productivity at work (Catalin, 2012). Recognizing and rewarding the employees is essential to the company since they are motivated to work and is one of the key actions for improving their esteem. Empowering employees through internal and external human resource training is also essential to improving the efficiency of the staffs which is essential for satisfying the self-actualization needs (Weinstein, 2014). The employee belongingness should be worked on through ensuring every employee is working in a tema or a department and encouraging strong interpersonal interactions. Safety can be ensured by ensuring the employee is secure and psychology in ensuring that they have basic needs to include air, basic salary and working tools.
The firm needs to develop a new product line which they can be able to efficiently work on while still improving on the current ones. For the efficiency of the product, they need to do a market survey of the customers which ensures that the products sell well. The market research is essential for ensuring that the expansion of the business is effective and leads to increased profitability (Mukharji, 2015).
Finally, the customer service needs to be improved which ensures that the current customers are maintained while still gaining more. This is achieved by developing a program of training employees who are vital in improving the customer service.
References
Catalin, B.A.N.U., 2012. MOTIVATION-THEORIES. Defense Resources Management in the 21st Century.
Weinstein, N., 2014. Human motivation and interpersonal relationships. Springer Netherlands.
Salerno, T., 2017. Cargill’s corporate growth in times of crises: how agro-commodity traders are increasing profits in the midst of volatility. Agriculture and Human Values, 34(1), pp.211-222.
Bohner, H. and Earl, H., 2010. Increasing profits through precision seeding and seed treatment. Crop Advances: Field crop reports.
Drake, P.P. and Fabozzi, F.J., 2010. Financial ratio analysis. The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management, pp.243-274.
Innocent, E.C., Mary, O.I. and Matthew, O.M., 2013. Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry. International journal of business and management, 8(8), p.107.
Gibson, C.H., 2011. Financial reporting and analysis. South-Western Cengage Learning.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
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Fridson, M.S. and Alvarez, F., 2011. Financial statement analysis: a practitioner's guide (Vol. 597). John Wiley " Sons.
Lin, F., Liang, D. and Chen, E., 2011. Financial ratio selection for business crisis prediction. Expert Systems with Applications, 38(12), pp.15094-15102.
Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson.
Ipcioglu, I. and Taser, A., 2011. The Effects of Bussiness Education on Entrepreneurship Characteristics: An Empirical Study. International Journal of Business and Management Studies, 3(2), pp.121-130.
Mukharji, P.B., 2015. A Study of Formal and Informal Techniques of Control of Bussiness.
