Finance analysis

Introduction

California Ltd Fruit Growers grows oranges in Florida USA, for the export market. Recently the share price of California Ltd Fruit Growers has dropped by 10% due to the rumour that it has an unstable financial situation. California Ltd Fruit Growers currently exports fresh oranges to Japan and Canada. And it imports its supplies and fertilisers from China. The purpose is to study about the finance condition of California Ltd Fruit Growers to improve the finance condition.

Findings

First, the fixed assets in 2016 and 2017 has been $ 1.6 million and $ 1.7 million, at that time, the fixed assets represents the facilities, tangible assets and intangible assets from China, the increase represents the scale expansion of the orange corporation and the inflation of the orange market, because of which, the foundation of the fruit can be huge.

Second, the share capital represents the stock market’s prosperity, when it has suffered from decrease from 1.24 to 0.76 from 2016-2017, it means the market acceptance reduces, if it reduces, the long term product optimization should be improved, otherwise it would be never satisfied in the market operation.

Third, the cash in hand has been 0.02 and 0.01 in 2016 and 2017, the cash has reduced to a half, which means the cash flow faces crisis for further funding and expansion. The bank overdraft is 0.23 and 0.15 in 2016 and 2017, which mean the little decrease. It is also a kind of cash finance resources, the accounts payable reduces and can be usable, which means the debt relationship is solid and flexible, to some extent, the leverage with certain level’s debt should be flexible.

Fourth, the creditors and debtors can be the daily cash inter flow, the creditors are inflow, 0.24 and 0.43 can be 2016 and 2017. It means the activeness can be achieved, the debtors are outflows, 0.7 and 0.6 in 2016 and 2017 can be decrease, why the inflow increases while the outflow decreases, does it mean that the investment decreases?

Fifth, the sales revenue is 0.832 and 1.08 in 2016 and 2017, the cost of sales is 0.477 and 0.49, the little increasing revenue and cost control is common. The profit is 0.355 and 0.59, the profit ratio is 43% and 55%, the marginal profit is 91% which means the profitability is huge.

Analysis of findings

First, the profitability is huge and the marginal profitability is huge, it means the optimization in operation can be organized. The profitability is still huge with reduction of stock and the share price’s decrease, it means the board of directors should suffer from investment deviation, based on profitability. When profitability is adequate, it means it is mature for the business to undergo the expansion, instead of conservative strategies, the companies should expand channels or localize or upgrade services with regards to orange, when the product upgraded, the profitability can be increase. What should be particularly pointed out is that, the product should be packaged and have discount, the investment on package or design, orange test are not enough.

Second, the utilization and function of bank overdraft should be reutilized in investment, the corporation should ask itself for one question, should it expand market in Japan and Canada? Should it change or upgrade the service? Should it still follow route in selling orange? If so, should the investment have essence, is the further loan proper? Should the debt be further extended? If the outflow can be increased to supply, is there any necessity to go to bank for loan?

Third, the stock share and boarder of director’s benefits have been broken, is it because the investment return is low, it can be the contribution to operation or the involvement of management’s problem, it should be fastened up to increase the investment revenue for reservation or expansion. The capitalization should be improved, first, it must have accounting management over debt during the procedure of export, market investigation and client management, second, it must have distribution for independent operation, they should be structured in stock internally inside the boarder of directors, later, the risks can be shared but there is no need to ask for market’s acceptance. Any switch of business mode can be accountable. Third, it must reduce loan unless it needs expansion, if only it is export, one time’s investment should be done.

Fourth, the creditors and debtors should be balanced, the debtors’ reduce would soon change into increase because of export, when it takes place, the cash or bank overdraft should be reduced, the long term liabilities or debts can increase, however is it within the market leverage faces question, the investment from external capital, cooperation with other fruit shops, the creative involvement of the orange, orange juice, apple, milk tea, even providence as gifts can be permitted. These kinds and forms of cooperation can share resources and extend service line, the export’s investment should never be huge, the market leverage can be together with cash inter flow (Tirole, Rendall, 2017). 

Fifth, the Japanese market is convenient with less orange because the sunshine is not enough, the demands over supply mean the easy expansion of market, while the Canadian market is inconvenient because the local customers are not used to the habit of orange, the unfamiliarity can increase hardship. When the export should go ahead, the market should be adjusted to reduce the finance risks. For example, in Canada, orange should be opened as one small entry for further expansion, because the finance insurance and capitalization is adequate, it is possible to hire distributors for credit management, but the market scale should be limited because of customers’ limitation. On the other hand, in Japan, orange can be highly recommended because local customers are dense, they prefer to have fruit and are addicted to drinking fruit juice, the business of orange can have variation from orange juice to orange package, orange diet, orange dishes, orange fast food, orange decoration, orange exhibition, because the orange in USA has been exposed to great sunshine with huge nutrition, it can be sold quickly and rapidly so that the cash inter flow can be quite adequate (Walsh, 2010).

Sixth, the fixed assets should be equipped, the current fixed assets have had one mature mode with suppliers from China, which means the business is stable, then it must be expanded when exported to foreign markets, at that time, the machines should be in the USA level, only then can the machines be copied. It can require certain extent of the increase of finance loss, but it should be tolerated. Because Japanese market has huge market share, it is possible to find one top fruit client to have distribution, which can quickly share commissions, from first investment to monthly operation commission. Such kind of procedure can also reduce long term liabilities (Tirole, 2005).

Conclusion on the financial position of the company

The company at that time should not rely on stock, and should increase stock structure within corporation, the export clients should have been structured into stock to expand corporation scale. What is more, the market leverage has been kept and retained, the short term investment can pay off debt, the Conservative strategies  of orange business can have more variations.