Bx Financial Analysis

Introduction

Financial statements provide vital statistics about business’s internal accounts. Albeit these figures are useful they carry less weight, than performing accurate analysis using accounting ratios and comparing it with either the previous year’s ratios, or with the same averages of industry competitors.

Section 1

For this the assignment, ratio analysis was performed evaluating BCX’s performance during the past 5 years, focusing on the following ratios:

 Profit margin

 Asset Turnover

 Return on Asset

 Return on Equity

 Debt to Equity Ratio

 Equity Multiplier

Figure 2: Ratio Results

Section 2

Identifying five external factors that impacted on BCX’s performance the previous five years.

2.1 Profit margin

Simply defined as

Total Asset Turnover

Measures the efficiency of a company's use of its assets in generating sales revenue.

2.2.1 On average BCX the asset turnover ratio for the 5 years, proves that BCX generally utilises its assets efficiently for revenue generation. The proof on this, is in the consistency, which proves that there is a working business formula for the BCX operations.

2.2.2 It is fitting to point out that the average BCX asset turnover is very low, but 2011 was one of the worst. What is meant, when taking the 2011 as the casing point, in the BCX business for every R1 spent, BCX makes back R1.70 cents.

2.2.3 One of the further contributing factors for the low asset turnover is that, BCX as an integrator, also drives its business through commodity hardware and software sales, which are low margin whilst the costs of procuring are high and some of the Original Equipment Manufactures’ (OEM) terms of payment are not always favourable.

2.2.4 It is also possible that in the year 2011 BCX was overly invested in assets. This could also be attributed to the investment made for the 2010 World Cup that had not been flushed out the system and/or acquisitions not properly consolidated, for optimum profitability

2.3.2 This could be attributed to a number of factors, one of which could be the low profit margins that may not be understood by the public or investor community. As is generally known that the average common stockholder is mainly interested in the bottom line.

2.3.3 The benefit of low ROEs comes from reinvesting earnings to aid company growth. The benefit can also come as a dividend on common shares or as a combination of dividends and company reinvestment. ROE is less relevant if earnings are not reinvested. In the case of BCX in the period in question, BCX has always issued new shares and acquisition of non-controlling interest per year whilst retaining or reinvesting some and paying dividends in the same year to maintain a balance in the capital outlay through shares for operations vis a vis the Shareholder value.

2.4 Debt to Equity