analysis shows that the collections are operating in a very efficient manner and
the overall liquidity is also in a favorable state. While the current ratio
shows Pro Diver may face difficulty in meeting short term obligations as &
when they are due, the quick ratio shows that in case of an emergency the overall
liquidity of the firm is quite strong. To improve the asset turnover ratio the
firm needs to efficiently deploy its assets to generate higher revenue. Current
ratio can be improved by slightly increasing the current assets and decreasing
the current liabilities. The expense turnover of the company is within the
industry benchmarks. Through profit margins it can be concluded that company
has high profitability but is unable to generate enough revenue from utilizing the
assets. Overall the position of the company looks promising but there are
certainly some areas for improvement. As far as the new opportunities are
concerned, pro diver must:
Look at the past turnaround of customers
& current competitors in the market & evaluate how many divers it can
attract with the novel changes.
Increase earnings as it will increase
the equity, profit margins & will ensure quick repayment of the mortgages.
Maximize focus on advertising about the
new developments to increase the revenue.The
above analysis must be interpreted considering these limitations (Hoggett et al, 2015):1.
The effectiveness of financial analysis
is best measured when there is data available for prior years to do a
comparison and see the actual increase or decrease in company’s revenue,
profits, debts or expenses.2.
Ratios like ROA, ROE, Assets turnover
ratio, receivable turnovers are computed using the average assets, equity or
receivable balance. Due to unavailability of other period balances, the ratios
are computed taking into consideration available year end balances only. 3.
Due to absence of sufficient
information, the monthly or quarterly average could not be taken to minimize
the effects of seasonal fluctuations.4.
The analysis is done basis the
assumption that all the non-current assets are reported at fair value. If any
asset is at historical dollars, then some ratios may produce false picture.
Cash flows sufficiency could not be
measured due to the absence of cash flow statements.