Liquidity Efficiency and Social Responsibility †MyAssignmenthelp

Question: Discuss about the Liquidity Efficiency and Social Responsibility. Answer: Introduction: Finance is one of the most important resources of the business that allows business to carry out all the operations smoothly and in turn leads to accomplishment of desired goals. Further, it is a well-known fact that effective management of finance in every kind of organization is must as it directly has the positive impact on the overall performance of the enterprise and leads to favorable results(Anwar, Rahmawati, Rismawati, Rukmini, 2016). In the modern era, every type of organization carries out all the operations on wider basis due to which financial requirement is high and satisfying the same allows in the accomplishment of the desired results. The present study carried out is based on ASOS company which is a British online fashion and beauty store. The company offers more than 850 brands in the market which involve clothing and another type of accessories. The present report is based on conducting the ratio analysis of the company for judging financial performance and critica l reflection on the company performance considering the financial reports etc. Profitability 2011 2012 2013 2014 2015 Gross Profit Margin 49.06% 50.91% 51.80% 49.72% 50.14% Operating profit Margin 4.68% 6.30% 7.08% 4.78% 4.58% Return on capital employed (ROCE) 18.68% 27.37% 25.51% 20.81% 17.02% (Star, 2017) Above shown are some of the ratios of ASOS company for the year ended 2016 that reflects the overall business of the company in the market. Further, it is a well-known fact that ratio analysis indicates the internal strength of the business and it can be known whether financial resources of the business are utilized efficiently or not. Profitability ratios have been calculated that takes into consideration gross margin ratio, profit margin ratio and they highlight whether profit of the business is adequate to meet major expenses of the enterprise or not(Dokas, Giokas, Tsamis, 2014). Gross margin ratio helps in knowing the sales revenue of the enterprise that the business retains after incurring the direct associated linked with producing the goods. Gross margin ratio of ASOS plc for the year 2016 is quite high which is 50%, and the reason behind the same is the rise in sales revenue of the business(Exchange, 2016). Overall the revenue of the organization is quite high that supports in recovering all the major expenses. In short, it is reflecting the financial strength of the business is quite strong and all the resources are utilized by the organization efficiently. ASOS plc has control on all the major expenses, and this is the main reason due to which revenue level of the enterprise is quite high. On yearly basis, gross margin percentage is increasing, and this shows real strength of the business(Evans Mathur, 2014). It is reflecting that performance of the enterprise is enhancing rapidly, and all the main resources are utilized efficiently by the business especially financial that is considered to be the life blood of the business. Profit margin ratio of ASOS plc for the year 2016 is 1.66%. It is computed by dividing net income by the sales of the company. The profit margin ratio of ASOS plc is not up to the market and improvement is needed(JOURNAL, 2017). Further, it is indicating the companys profitability is not very secure and the overall level of low profits indicates that sales volume of the enterprise is declining as compared with the past. The company is required to focus on enhancing its sales volume so that profit margin ratio can be easily enhanced with the help of this. Apart from this, it is reflecting the inability of the business to manage all its expenses. Generally, all the operations carried out by the business are crucial, and this is the main reason due to which controlling all the major expenses is must for the enterprise. Maintaining the profitability level for the longer period can assist in gaining the competitive edge and can act as the development tool for the firm. ROCE margin of busi ness is fluctuating and it is representing that business is not able to obtain higher return on the capital employed. Dividends 2011 2012 2013 2014 2015 Earnings per share Basic ( Pence) 0.14 0.27 0.49 0.45 0.44 Dividend Cover 0 0 0 0 0 Dividend Yield 0 0 0 0 0 (Star, 2017) Earning ratio has been computed where P/E ratio of ASOS plc has been computed which is considered as the ratio of companys present share price to its earnings per share. It supports in knowing how the stock is valued in the market. In short, it is possible to know where an organization is operating efficiently in the market. The P/E ratio of ASOS plc is 14167 which is considered to be very high. It is directly indicating that company can provide the higher return to its investors and their needs are satisfied properly by the business. Apart from this, in the near future also high growth rate is expected where investors can expect the higher return on the stocks in which they have invested funds. ASOS plc can provide the high return to the investors due to the presence of high profits and revenue. This is indicating the organization is operating efficiently in the market and can maintain its performance in an appropriate manner. The stock of the company is not undervalued. Apart from this, with the help of this ratio, it is possible for the business to compare its performance with those of competitors present in the market(Lan, 2017). Higher P/E ratio reflects the efficiency of the business in carrying out overall operations. So this is indicating the performance of ASOS plc is up to the mark. Dividend ratio of ASOS Plc has been calculated where there are no such figures as an organization has not paid the dividend to its investors. Due to this reason dividend ratio of the company is zero and the main reason behind the same is that company has not paid any dividend. Generally, the decisions associated with payment of dividend are taken by the top management of the business, and it is possible that payment may be done in the quarter of the financial year or in the end also. Profits of the ASOS plc are present in the adequate amount and due to this reason business can easily pay the dividend. Asset turnover ratio helps in knowing the efficiency of the business in utilizing its assets. The asset turnover ratio of ASOS plc is 2.22 that represents that company is efficiently deploying its assets in generating revenue. Further, it is indicating long term strength of the business where the range of resources present with ASOS plc are efficiently utilized and this in turn is saving major costs associated with the company(Plc, ANNUAL REPORT AND ACCOUNTS 2016, 2016). On a yearly basis, sales revenue of the company is increasing, and this is indicating that utilization of assets is taking place in the proper manner and this is efficient for the entire business. Stability and liquidity 2011 2012 2013 2014 2015 Current Assets 62.32 68.33 74.78 68.60 70.54 Current liabilities 48.10 48.52 95.09 48.83 99.98 Current ratio 1.30 1.41 1.53 1.40 1.42 Acid-test ratio 0.24 0.47 0.57 0.48 0.57 (Star, 2017) Liquidity ratio has been calculated for ascertaining the financial position of the enterprise. It reflects the companys ability to pay off its debts. The current ratio of ASOS plc is 1.04 which is considered to be most appropriate for the business(TIMES, 2017). This is indicating that enough cash is available within the business to pay its debt. ASOS plc is earning adequate amount of income that can be utilized in meeting all the major expenses of the enterprise. Maintaining this ratio can surely provide long term benefit to the business in the form of ability to meet the major expenses. In short, operating along with the day to day expenses of the company can be easily met due to appropriate liquidity ratio(Raki?evi?, Miloevi?, Petrovi?, Radojevi?, 2016). The company will not face the unfavorable situation in the near future such as inadequacy of finance, and it is reflecting the financial ability of the company. So, this is beneficial for the entire company in every possible where all the major operations can be carried out efficiently and this in turn can act as the development tool for the enterprise. In case if any company does not have the adequate amount of cash to meet its major expenses then various challenges have to be faced that influences business operations adversely(Lansdown, 2017). The company which has the strong liquid position in the market can easily manage its main expenses, and due to this reason, ASOS plc is benefitted through this. Its liquidity position allows in smooth functioning of the business operations and in turn adequate cash is present for meeting all the challenges that are faced while carrying out overall operations. The reason behind the strong liquidity position is financial planning that has suppo rted ASOS plc to become financially stable and to meet with the expectations of all the stakeholders associated with the business. 2011 2012 2013 2014 2015 Non-current liabilities 31.26 33.29 52.09 40.55 72.22 Capital employed NA NA NA NA NA Gearing ratio NA NA NA NA NA Total liabilities 48.10 48.52 - 49.09 - Total equity 51.90 51.48 100 50.91 100 Debt to equity ratio 92.6% 94.2% 0 96.4% 0 (Star, 2017) Financial stability ratios have been computed in order to know whether ASOS plc is financially stable or not. Gearing ratio of the company has been calculated that compares owners equity to the funds that are borrowed by the organization. Considering the gearing ratio of ASOS plc which is 0.65 it has been found that the ratio is moderate where it is neither high nor low(traders, 2017). Overall the business is not risky, and the level of gearing is maintained by the organization. It represents that organization has maintained an effective dividend policy that can easily satisfy the need of the stakeholders associated with the company. Generally, the high proportion of debt in the financial structure of the enterprise is considered to be risky as it indicates that company heavily depends on loans for satisfying its financial needs and this is not at all considered to be appropriate(Heikal, Khaddafi, Ummah, 2014). The overall ability of the company to generate high profits and sales is adequate. But on long term basis, it is required for ASOS plc to maintain the gearing structure as it should not be very high or low. Moderate level of gearing structure can allow the company in accomplishing its long term financial objectives. Therefore, by computing various ratios, the overall financial performance of ASOS plc has been identified. It is indicating that company is financially strong and has well organized its resources for conducting the key operations. Moreover, the profits and sales volume of the company is quite high that has allowed ASOS plc to become the leader in the market and has enhanced the internal strength of the business(JOURNAL, 2017). Further, in the near future also the company is required to maintain this performance so as to grab the range of opportunities present in the external environment. Apart from this, an organization must focus on declaring dividends so that more investors can be attracted easily and through this stakeholder of the business can be satisfied easily(Peavler, 2016). Therefore, with the help of this, it can be stated that ASOS plc is operating efficiently in the market and can cover its major expenses. Analyzing the financial statements and annual report of the business it has been found that business is operating efficiently in the market. Further, profits along with the sales revenue of the enterprise are quite high, and this is enhancing at a faster pace every year. ASOS plc is utilizing its financial assets in an effective manner and this has become one of the main reasons behind the success of the company in the market. Before undertaking this research, I was not aware of the financial performance of ASOS plc, but through its annual report, it became possible for me to know its overall efficiency. I identified that company had developed appropriate standards of corporate governance for effective management of business operations. Board has been formed whose primary task is to review the overall strategy of the enterprise, approving financial statements, remuneration policies, risk management policies, audit practices, etc(ArAs, 2016). The roles and responsibilities of chairman and chief executive officer are clear where they implement the major strategies that are associated with the performance of the enterprise. Apart from this, to deal with the director conflict, proper procedures are present so that interests of the top executives can be managed through this. I analyzed that corporate governance of ASOS plc is quite appropriate and flexible too as compared to other firms operating in the market. The audit committee has been developed by the business which takes into consideration four independent directors and the main responsibility involves financial reporting, internal control, and risk management, internal audit, etc. Through the assistance of this committee, ASOS plc can carry out business operations in an effective manner. It has supported me in understanding the relevance of audit committee, and this has assisted in conducting operations smoothly(Larcker Tayan, 2015). Financial and not financial measures have been undertaken by the business that covers a large number of areas such as health and safety, business integrity environmental concerns employment diversity, etc. Through pro per coordination, in the internal practices of the business all the employees can work efficiently and due to this reason profits earned by the company are high. Through the overall financial analysis, I identified that net asset value per share of ASOS plc in the year 2016 was 104.16p. It refers to public firm total assets minus its total liabilities divided by the number of outstanding shares. The concept of NAVPS is very effective as through this value of one share can be easily determined. Apart from this, it supports investors in comparing funds performance with the market or any other benchmark linked with the industry in which company operates. Considering the NAVPS of ASOS plc, it has been found that this value of the business is high and this is positively affecting the share price of the business(Wrigley Lowe, 2014). Due to this basic reason, ASOS plc can satisfy the need of its investors by providing them higher return as per their expectation level. I am well aware of the fact that it is necessary for every business to satisfy the need of its stakeholders such as investor etc. Therefore, ASOS plc is efficient enough in providing the high return to its investors and the level of return is increasing on a yearly basis. In the financial year ending 2016 the share price of ASOS plc was 4725 and at present in the year 2017 5845(Plc, Share price chart, 2017). It is reflecting that share price of the business has increased by 23% and the main reason behind the same is the rise in profitability level of the company. I have analyzed that companies whose share price rises on continuous basis represent that firm is in the growth stage and possess the capability to satisfy the need of the investors that are associated with the company. Considering the share price of ASOS plc it has been found that majority of the investors prefer to invest in the shares of the business by considering the amount of return that company is providing on the invested capital. 2011 2012 2013 2014 2015 Share price 2339 1811 2749 6220 3928 As per my view investing funds in the shares of the business is highly profitable and it is one of the feasible options. On long term basis, it is recommended to every investor to purchase shares of the company so as to yield the higher return. Further, the company possesses capability to satisfy the need of every investor due to the high level of profits that are earned by the organization. On yearly basis profitability level of the business is rising at the faster pace where management of the ASOS plc allocates funds in satisfying need of the investors that are associated with the firm(Yeoh, 2015). Therefore, in this way investing funds in the shares of the company is the profitable option and this can be proved with the help of share price of the company. Moreover, I analyzed the financial planning strategy of ASOS plc which is also appropriate for enhancing business performance. The company strongly focuses on maintaining relation with its shareholders where appropriate communication strategy has been undertaken so as to meet with the need of different shareholders. The concept of annual general and face to face meetings are employed by the company through which actual requirement of investors is known(Plc, CORPORATE GOVERNANCE REPORT, 2014). Appropriate standards along with policies have been framed within the company where main stress is on conducting the overall activities in the proper manner. It also involves companys safety policies, ASOS supplier standards, behaving ethically, etc. So, this has also acted as the development tool for the enterprise and has provided support to be financially strong. Overall analysis has supported me in understanding the key reasons due to which ASOS plc is operating efficiently in the market and this has been clearly highlighted with the help of annual report and other financial statements. The company stands on the top in the market concerning satisfying its investors need, and this is only possible as profitability level of the business allows to do the same(Young, 2014). Moreover, business is efficient enough in keeping a check on all the major expenses that lead to the decline in profitability level. Overall expenditure level of the enterprise is moderate, and the company has employed the proper approach to manage its major expenses. Conclusion The entire study carried out has supported in knowing the financial strength of ASOS plc. Further, the ratio analysis has supported in knowing that company is operating efficiently where its profitability and net sales are high as compared with the past. Through the annual report, it has been found that corporate governance activities of the company are also effective where the proper structure has been formed. Further, it is feasible for the investors to invest funds in the shares of the company. On continuous basis share price of ASOS plc is rising at the faster pace and this is the main reason due to which investment in this company is feasible and is a good option for the investors. 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