A Financial Analysis of VA Athletics Ltd

VA Athletics Ltd. (VA)'s profits are on the rise due to the firm's ability to generate revenues. Its liquidity position is however on the decline due to investments made mostly towards assets as seen by increase in the acquisition of Property, Plant and Equipment which doubled in a period of two years. The increase of liquidity of the firm leads to decrease of the leverage and vice versa. The firm is yet to fully utilize these newly acquired assets to generate more revenues.

VA is also yet to fully utilize its debts to generate extra profits since the debt to assets ratios are lower than the competing firms in the industry. The receivable turnover increased considerably showing that creditors and suppliers are yet to be paid. It is therefore recommended that investing in the VA's common shares is the best option since the company is still making profits averaging at 9% per year.

The profitability of the firm is shown in its ability to derive returns from investment venture of the company. The profit margin shows how the firm's ability in controlling their costs of sales, financial and operating expenses. The profit margin of the Valley Athletics Ltd. (VA) stands at 12.5% as of 2016, higher than the preceeding years. The firm is financially stable and generating good returns since the industry ratio at 5.81% is way below the firm's rate.

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Return on Equity indicates profitability of every coin contributed by shareholders of the company to generate high returns attributable to ordinary shareholders. ROE is a good indication of whether the company is even capable of generating a return that is worth whatever risk the investment may entail (Berman, Knight and Case, 2013). The firm's ROE is on the decline. This could be attributed to increased operating expenses of the firm over the years. The interest expenses, for example, rose from $36,000 in 2014 to $102,000 in 2016. However, the industry's rate is lower than the VA's return on equity.

Interest charges are paid from operating profits as explained by Times Interest Earned Ratios. Eventhough the interest expenses has increased over the years, the operating profits of the company nonetheless increased. The Times Interest Earned is however on the decline over the years. This implies that VA could be using a relatively high level of fixed charge capital to finance the acquisition of the Propery, Plant and equipment acquired over the years.

Every company aims at meeting its financial obligations as and when they fall due. The easier it can pay debtors, suppliers and creditors, the higher the returns and financial perfomance of the company. The Valley Athletic Ltd's current ratio has declined over the years from 2.25 in 2014 to 1.45 in 2016. This was occassioned by increase in the current liabilities over the years. The quick ratio on the other hand has been on the decline over the years vis-a-vis the ratios of the competitors in the industry. The VA's ability to meet its short term obligations is therefore on average. This could be due to its poor capital policy management.

The liquidity position of the firm if unchecked might caused a going concern considerations especially to its creditors and suppliers. This on the other hand might lead to reduced access to credit facilities from the financial instititutions. The increase of liquidity of the firm leads to decrease of the leverage and vice versa.

A company should be able to utilize its assets to generate profits. The VA's return on assets has been on the decline since 2014. The total assets increased substantially over the years with net income rising at a lower rate.Capital assets .i.e Property, Plant and Equipments doubled over the two years i.e $660,000 in 2014 and $1,402,800. The capital assets turnover as such declined over the years. The rates nonetheless are lower than the industry perfomance.

The new assets acquired by the VA over the recent years are yet to be fully utilized to generate revenues. It can also be due depreciation of most of its assets which makes the firm not to utilize fully to generate extra revenues. Declining rates could also be due to large non operational assets. Full utilisation of total assets could generate sales revenue over time. Its current assets, inventories, increased at a lower rate. The inventory turnover over the years is lower than the industry rate. This can be attributed to the firm charging higher prices than their competitors. The firm can therefore be said not to be utilizing their inventories to generate more sales.

Firms uses external financing to fund most of its operations. The optimal level of the use of debts is however limited by the liquidity of the firm (Williamson, 1988). The more efficient the firm can utilize its debts to gerate revenues, the more it performs better against competitors in the industry. The Valley Athletic Ltd's debt to asset ratio is declining over time from 2.20 in 2014 to 1.80 in 2016. The rate of increment of debts is higher than the rate of increament of the acquisition of assets by the firm. In order to reduce debts while improving the rate of growth of revenues, one of the option of the firm is to enable investors acquire shareholding in terms of common shares.

The receivable turnover declined considerably, while in the same period the collection period increased from 36 days in 2014 to 56 days in 2016, much higher than the industry's 35 days. The recievable turn over is lower than the industry meaning that most of the creditors and suppliers are yet to be paid. Since the firm is not efficient in utilizing the assets to generate revenues and control its debts, the collection period increased.

The Valley Athletics Ltd is still generating revenues with average sales growth of 9% over the years. The efficiency to generate profits however is still low. The liqudity of the firm has been on the decline over the years which might be a major consideration in giving credit and financial support to the firm. This can however be argued in terms of asset acquisitions, the Properties, Plants and Equipmentswhich has risen considerably over the years despite the net effects of inflation. The best option will therefore to invest in the company; that is by buying the VA common shares. This will enable the VA to raise the capital required as well as enable the investor be a shareholder.

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