Review of The Ryan Boot Company Financical Statement Essay

Review of The Ryan Boot Company Financical Statement - Essay Example This ratio is to be analyzed in comparison with the profit margin. Since Ryan is putting more assets for generating lesser profit margin this ratio is very less as compared to that of the industry. Ryan would be able to increase the profit margin by lowering the total assets or increasing the profit margin. This area needs immediate attention. It is observed that this ratio is slightly higher than that of the industry. When the ROE is higher and ROA is lower, it implies that the company is trading mainly on debt funds. This implies that the debt ratio for the company is high. This is observed from the balance sheet of the company. It is seen from the balance sheet that while the long term debt of the company stands at 2,500,000 the current liabilities are 2,750,000. Although there is no harm in carrying larger current liabilities since they are non-interest bearing, it is important that the company maintains proper short term liquidity position to meet these liabilities as and when they become due. On one side although this is an advantageous position for the company from another angle this points towards a weakness for the company. This ratio is lower than that of the industry and shows a weakness for the company. This implies that either the company is too liberal in its credit policies to augment its credit sales or the company is following inefficient collection policies. If Ryan is in the habit of offering higher credit periods to its customers the company has to have a close look into the products as to the necessity for offering such higher credit terms. On the other hand if the collection policies of the company are inefficient and weak they need to be tightened so that this ratio improves. Otherwise the company will incur losses on account of more bad debts. This ratio is found to be lower than that of the industry and therefore represents a weakness for the company. It is for the company to reduce its total assets base

Multi Product Economic Order Quantity with Joint Ordering and no Stock Case Study

Multi Product Economic Order Quantity with Joint Ordering and no Stock Outs - Case Study Example Inventory Management Policy Inventory Cost Various elements of inventory cost include ordering cost, carrying cost, purchasing cost and stock-outs cost. Variation in ordering quantity results into variation in cost. The important elements of ordering cost includes preparation and Cost of tendering or bidding, negotiations with the suppliers, selection of suppliers and placement of purchase order. Ordering cost per unit comes down with increase in quantity. Ordering – Cost Curve Rationale for inclusion in Joint Ordering We have considered cement, paint and tiles for joint ordering purposes. Once the frame of the building is in place, the need for cement, tiles and paint arises, though use of cement is involved in all stages of construction. Plastering of walls with cement, flooring and painting work are simultaneously done at different parts of the building in an alternative manner in view of curing. Therefore, clubbing these materials for joint ordering is eminently justified since mostly suppliers of building materials deal with all these materials under one roof. Order Quantity and Joint Ordering Cost Since ordering cost is a component of material cost, order quantities for various materials considered for joint ordering need to be matched and fixed. It is mostly a question of alignment in the operations, taking into account the constraints such as availability of storage space or other factors. Stock Outs Situation Shortages or stock-out situations are avoided under efficient inventory management system. A system where purchases are based on pre-determined re-order level at which replenishment of stock takes place, considering the lead times and contingencies based on experience and market conditions, this issue of shortages or stock out situations arise when the stock level breaches the minimum level which is set below the re-order level. The cost of emergency purchasing and transportation will be high in these cases. Also, these situations involve a dditional cost since the customers’ demand in relation to delivery may not be fulfilled and result into penalties in the construction industry. Inventory Control Inventory comprises stocks of various materials required in the operation of the business, in this case construction. The main objective of inventory control is to achieve maximum efficiency in the operations with the minimum investment in inventory. Various organizations in various types of industries adopt different inventory models depending upon the level of uncertainty with reference to lead time and demand. The understanding of ordering cost and carrying cost and its relationship for striking a balance in order quantity will be useful in deciding the minimum, maximum and reorder levels for various items of stocks for joint ordering in a multiproduct environment to keep the inventory cost at minimum level. The inventory carrying cost will be very high if the order quantity is at higher level. On the other hand, if the size of the order is small, the ordering cost will be very high. The relationship between carrying cost and ordering cost is used in working out economic order quantity. Economic Order Quantity = SQRT((2*A*S)/C) Where A = Annual usage in units S = Ordering cost per order C = Annual