Evaluation of the Financial Performance of a Chemical Company Essay

Evaluation of the Financial Performance of a Chemical CompanyThe Lee Chew Cheng Wong Chemical Company produces luxuriously qualityspeciality chemicals, and it exports around 85% of its output to manycountries and regions. Since the establishment in the mid 1980 thiscompany has emphasized the shareholder value. To keep this focus, a unseasoned Chief Executive Lee Shan Loke Teo has proposed a lot of newpolicies. This assignment evaluates the financial rations with SunSee Chemical Company and average industry, and presents the financial outcome of the proposal that Lee Shan Loke Teo adopts. That finalsection shows the recommendation of costing system and capitalexpenditure budget.Evaluate the financial performance As the moolah and button account shows, the Lee Chew Wong ChemicalCompanys net sales decreased from $5.6m to $4.2m, and the grossprofit reduced from $1.8m to $1.5m, while in 20x9 the maintained profitof the company reached the peak of $0.4m during this period. Althoughthe sale volumes decreased, the profits went up. From the financialstatement it can be found that the difference is due to the largeoperation expenses which perish the profit between 20x8 and 20x9,and the less retained profit also results the decrease of Earning pershare. Therefore, the EPS and Retained Profit in 20x9 were higher than20x8 and 20x7. As regards the balance sheet, in 20x9 the fundamental assetof the company increased significantly equalized to 20x8 and 20x7,because the fixed assets increased apparently but it also resulted theshortage of cash in 20x9. In the liability section, as follows as theincreasing retained profit, in 20x9 shareholders equity (reserves)also climbed a lot. As far as we considered the financial ratios(Table1), from 20x7 to 20x9 the profitability ratios improveddramatically due to the less cost of sales and operating expense. Theliquidity ratios become worse, because the growing fixed assetsresulted in the lack of liquid asset. The following part is going to compare financial performance with itsmajor rival, Sun See Chemical Industry.Table 1=======The Lee Chew Wong Chemical Performance Ratios 20x9 20x8 20x7 20x9Industry averagesGross profit to sales (%) 35.71 33.33 32.14 44Operating profit to sales (%) 21.43 13.33 14.46 30Return on capital ... ...1998), following, an Introduction, 4th EditionDyson, J.R. (1997), Accounting for Non-accounting Students, PitmanPublishing.Elliott, B. and Elliott, J. (2002) Financial Accounting, describe andAnalysis, International Edition,Istvan D.F. (1970). Capital-Expenditure Decisions how they are madein large corporations. Indiana University.Jones R.L., Trentin H.G. (1971). Budgeting Key to planning andcontrol. American Management Association, Inc.Lewis, R. and Pendrill, D. (1996), Advanced Financial Accounting, 6theditionLouderback, J.G., Maurice, L. and Hirsch, J.R. (1982), CostAccounting, Accumulatio n, Analysis, and Use, Wadsworth InternationalStudent EditionPike, R. and Neale, B. (year), Corporate Finance andInvestment-Decision and Strategies, 4th edition, FinancialTimes/Prentice Hall.Pike R.H., Wolfe M.B. (1988). Capital Budgeting for the 1990s. AReview of investment trends in larger companies. The CharteredInstitute of Management Accountants.Woods, F. (1993), Business Accounting, Pitman Publishing.http//teachmefinance.com/costofcapital.htmlhttp//www.dod.mil/comptroller/icenter/learn/abconcept.pdfhttp//www.expectationsinvesting.com/tutorial8.shtml