Financial performance of electrolux for the period
The profit margin on sales ratio tells us the ability of the firm to convert its sales into profits. A low profit margin on sales indicates high expenses which consume most of the revenue earned by the firm. In such a case, the firm needs to analyze and point out areas which are producing more expenses than usual. The higher the ratio, the better it is for the company. From the perspective of Electrolux there is a significant moment is reviewed in the year 2008. Electrolux’s net profit margin is almost dipped downwards in the year 2008 as compare with the year 2007 because of margins in selling, administration expenses, R;D expenditure, etc.
In that case Electrolux still has a room for improvement in the net profit margin. Moreover in the year 2008, because of rough economic and business condition, Electrolux efficient business running strategy hit badly in terms of net profit margin. It is viewed that Net Profit margin rate will increase in years to come. The management strategy has helped generate more revenue but there has been significant impact made on the net profit Myers, Brealey and Marcus (2001). PRICE EARNING RATIO The price earning ratio is a very important ratio for the investors in the stock market.
The ratio helps the potential investor compare the stock with other similar stocks in the market. The lower the ratio, the better it is. In an ideal situation, all the stocks in the stock market should have similar price earning ratios, otherwise there would be profit earning opportunities on the shares. If the value for this ratio is low, it means that the investor needs to invest less money to get the earning Besley, Brigham, Scott, Eugene F. (2001). The price earning ratio of Electrolux in the year 2008 as compare with the year 2007 tells us that the stock is low priced in the year 2008 because of volatile and fragile business condition.
Moreover, Electrolux price/cash flow ratio in the year 2008 gives us an idea that the ratio is slightly low as compare with the industry trends and suggest that the company’s growth perspective are below average. DEBT GEARING RATIO Dependency on debt financing is not a bad habit but it has consequences if you rely on more. In the year 2008, Electrolux debt gearing ratio is on the higher in comparison with the year 2007 primarily due to the factors of business volume, increment in sales, fulfillment to pay the suppliers and acquisitions of fixed asset.
Due to the expansion in business, Electrolux has plenty of financial obligations, most of which has been acquired through debt. In 2008, Marks and Spencer reliance more on debt financing as compare to the year 2007. CURRENT RATIO The current ratio tells us about the liquidity of the company. It is the ratio which tells us the company’s ability to pay off its liabilities using the current assets in case the company is liquidated. Higher the current ratio, the better it is.
Electrolux current ratio is slightly on a higher side year by year from the year 2008 in comparison with the year 2007. This ratio indicates a higher margin of safety with respect to meeting current obligations. Electrolux’s current ratio will allow them to take more debt as compared to previous years practices. Although, Electrolux has made short-term investments due to which the current ratio is reported on the higher side and looks stable and healthy as compared to the previous years Besley, Brigham, Scott, Eugene F. (2001).
Electrolux current ratio has strong current ratio and its gives a strong and positive signal to the creditors that company’s business operation is running on a right path. The current ratio of Electrolux suggests that company have sufficient and ample reserve cash or liquid asset and Electrolux can utilize the excess or reserve cash on their ongoing business. RETURN ON EQUITY (ROE) An ROE of 2. 23% and 18. 24% (Annual Report, 2008) in the year 2008 and 2007 respectively indicates that Electrolux is less dependent on equity financing and company is heavily relying on debt financing.
The Electrolux’s return on equity (ROE) in the year 2008 and 2007 reported volatile growth rates in because of Electrolux’s internal policies or due to macro factors. Company’s inconsistent performance in the shape of net profit year by year not make a significant impact on the ROE of the company in contrast with the industry as we know that the stockholder equity, which includes retained earnings, also makes a reflection on the company’s stock prices. SHARE PRICE FLUCTUATIONS The closing stock price of Electrolux in the year 2008 and 2007 is SEK 66. 75 and SEK 108.50
Electrolux Share Price (2008). If I am the broker I would prefer to hold rather than sold because on some grounds which is stated below: • Not out of the woods but small improvements in sales and margins and return to basics could translate into more upside. • In the year 2008 company’s earning is on the lower side as compare with the year 2007. So, it is very evident fact that Electrolux’s performance and its earnings have decreased but there are some indications that earnings will grow in years to come. Moreover, lower net earnings subsequently had a significant impact on its stock price.
In addition, this little increment in net earnings will make a strong reflection in the years to come and also this has had a positive influence on the investor, as the company has managed to keep its returns higher than that of the entire sector. • If I am the investor, I would invest the company, because I belief the company will actually deliver on recent proposals and meet current consensus forecasts. Also because the company’s recent market analysis shows that the company’s stock has been trading at a higher price than the entire sector.
Although Electrolux portrays a very strong and positive position in the markets place and without doubt this company has an ability to challenge its rivals to have a girds to become the market leader in the near future. There are certain areas where Electrolux should pay attention to like in the area of stock prices, debt management, net profit margin, etc on consistent basis and assist in increase its investor’s confidence towards the organization. Moreover, extra efforts need to be concentrated towards improving the product quality which really helps in uplifting the sales.
Also company formulates the strategy to overcome the macro factors like economic recession etc that really troubles the company’s future. REFERENCES Besley, Brigham, Scott, Eugene F. (2001). Principles of Finance. Florida: Harcourt College Publishers. Brealey, Richard A. , Stewart C. Myers, Alan J. Marcus (2001). Fundamentals of Corporate Finance. 4th ed. New York: McGraw-Hill. Electrolux (2008). Annual Report. Available: http://www. electrolux. com/financial_data. aspx Last accessed 30 May 2010. Electrolux (2008). Share Price. Available: http://www. electrolux. com/share_price. aspx Last accessed 30 May 2010.