With a rate much higher than thesis free rate of return (4%) investors are likely to invest in the company. Return on sales Return on sales (ROSS) stands at 8. 59% in 2008 and stays fairly consistent through to 2009. In 201 0 it increases marginally by 0. 68% to 9. 11%, however falls to 6. 30% by 2012. The target Return on sales is often around 10% dependent on the type of industry, so SASS falls below the target. However, SASS has a high sales volume, which does not necessarily mean a low ROCK. The year preceding August 2013 they received 19,372 orders; a 43% increase in the previous year. Gross Margin %. The gross profit margin in 2008 showed a pleasing 46%; however between 2008-2011, there is a continuous downfall, with a decrease of 7. 23% over the 3 years. Although this increased by 12. 4% in 201 2, the 7. 23% fall in gross profit could potentially be catastrophic for a company with low ROSS. However, this could be due to a change in the price of raw materials or selling prices. Liquidity and gearing Sass’s current ratio is always between 1. 5-1. 56:1.
However they have not borrowed any money over the 5 year period, so carry a low risk to investors. Therefore even though they are not at the ideal ratio, they have not borrowed any money; indicating they have good short-term financial strength. Activity Debtor turnover began at 8 days in 2008, however made a vast improvement in 2009 falling to 2 days and then from 2010-2012 remained at 1 day. Creditor turnover days began at 68 days in 2012 which is fairly high, however, this creased to 42 days in 2012. This suggests that SASS has good credit control and a low risk of bad debts as their debtor turnover is always at least 40 days less than their creditor days. Stock turnover has increased from 98 days to 121 days from 2008-2012 and remains fairly consistent throughout. However, due to the seasonal nature of the industry with fashions changing regularly, they should try to decrease their stock turnover days.
Ratios Sales per employee started at a commendable IEEE,477 and despite falling y EYE,801 between 2008-2012, increased to IEEE,835 by 2012. This totals El 27,358 increase in sales per employee over the 5 year period. Profit per employee remains consistent throughout, ranging between EYE,058-EYE,557; an exception being 2011 where it drops drastically to EYE,212. This correlates with the low-profit margins and returns on sales for the year.
From 2008-2009 sales increased by 104% as they entered the market, most likely due to promotion. However the following year it dropped 69% and then increased a steady 1 1 % over the next two years. The operating profit was 100% after the first year and dropped dramatically to -22% in 2011 resulting in a loss. However, this was recovered by 2012 with a 96% growth. To remain sustainable they must try and keep their growth rates consistent.
The company appears stable due to its good cash flow. They have a low risk to investors, with high potential returns. SASS has no gearing, which gives them the potential to expand in the future to remain competitive in such a tough industry. If they were to borrow this would also improve the company’s current ratio.