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Dewhurst Plc Essay

1118 Words5 Pages

As noted, Dewhurst Plc has a ROCE of 22.01% in 2016. In other words, every dollar invested in employed capital, the company earns 22.01%.
Dewhurst Plc.’s Return on Capital Employed (ROCE) of 22.01% in 2016 was lower than in 2015 23.32% ROCE. This means that the company’s ROCE in 2016 as against 2015 was not doing a better job of deploying its capital. The results have been adversely affected as a result of 4.67% decrease in operating profit.
But when the company’s Return on Capital Employed (ROCE) of 22.01% in 2016 is compared against the industry average return (8%-10%), the company had a greater return and a higher ROCE indicates a more efficient use of capital.
The gross profit margin for 2015 is 54.65% as against 2016 of 54.03% resulting …show more content…

Payables Collection period in 2016 is 90 days higher than in 2015 of 79 days which was more than the industry benchmark of 45-60days.This means that the company was able to negotiate better terms with their suppliers that is it takes longer time to pay its creditors.
Trade receivables are increasing but are substantially less than the payables which are also increasing indicating a very positive cash flow that funds are received from debtors 80days before being paid out. However, care must be exercised to avoid disaffecting suppliers and there is scope do this without harming the cash flow cycle. As mentioned before there may be some problems with the credit control function which may require further investigation.
The company need to weigh the option of holding on the cash and early payment discount and also maintaining a close working relationship between the two parties (Dewhurst and …show more content…

This means that Dewhurst’s cash conversion cycle is 71 days from paying for its inventory to receive the cash from its sale.

Financial Ratio Analysis - Liquidity
The working capital ratio has dropped from 5.37 to 5.23 in 2015 and 2016 respectively. In 2016, current assets available can cover or pay for its short-term current liabilities 5.23times which is higher than the average industry benchmark of 1 to 1.5times
The quick ratio for company in 2016 is 4.43, which compared to 2015 is 4.45 indicates the company's ability to service short-term obligations is unfavorable. But in 2016, current assets without inventories can cover or pay for its short-term current liabilities 4.43 times which is higher than the average industry benchmark of 0.75 to 1.25times which makes it favourable.

Financial Ratio Analysis – Growth
The company’s debt to equity recorded zero (0%) for both 2015 and 2016. The company did not record any debt, which is any borrowed capital such as long term loans and debentures.
The company’s interest cover has marginally dropped from 12.23 times to 12 times in 2015 and 2016 respectively. This indicates the company's interest coverage may not be sufficient. Which may be as a result of a decline in the company’s

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