Company Performance Analysis

In the current competitive market, it’s impossible to enjoy good performance of a company if series of analyses are not done over time. Changing consumer habits, demographics and other factors within the company’s environment require managers to be well conversant with the analysis skills (Burns 35). Effective business analysis contributes to good decision making and hence mitigates against unexpected contingencies that may drain the company’s revenue. Such analysis allows the company to make forecasts and goals be achieved.

The analysis may involve research in the business market environment or may also involve financial analysis. This paper will make use of SWOT and accounting ratio analysis. SWOT analysis focuses on the internal strength and weaknesses that business has and external threats and opportunities. It helps to avoid the bias of business focusing on the internal environment while ignoring the external one (Butler 115). The analysis has multiple gains which include an understanding of industry structure, increasing focus on the growth opportunities, developing marketing framework towards areas that generate competitive edge and unveiling looming threats and appropriate actions to be taken. SWOT analysis may analyze how the business is performing by looking at both the current and the impact of the past opportunities, threats, weaknesses and strengths.

Financial analysis refers to the process of examining the relationships that exist between or among the various elements of the company’s financial statements. Ideally, it involves comparison between particular information extracted from the company’s income statement and balance sheet. This is a time-tested approach of analyzing the situation of the business. Managers in companies use financial analysis to get an insight of the company’s financial health and also its potential. This ratio analysis may be useful in two ways. One, they may be used to examine the current financial situation in the form of horizontal and vertical analysis. Secondly, they can be used in comparison of performance between the company and its competitors through ratio analysis. The choice of the two analyses in understanding how the company has been performing is guided by the nature of results obtained. SWOT analysis will help me to get qualitative information of the performance while accounting ratio analysis will help to provide the quantitative impact of the environment. I therefore find it the best combination.

SWOT Analysis

Strengths

            This focuses on the internal positive attributes, intangible or tangible, in an organization. These are the one that are within the control of the management. The areas that are analyzed may include finance, organization structure, finance and marketing. Such strengths are demonstrated through the reputation, education, networks, knowledge, skills and background of the employees. Here I will embark on the impact of the training made to the employees and the skills received. This involves analysis of how such skills have helped the company to gain competitive advantage. It may also relate to the assets of the firm such as patent and copyrights, distribution channels, processing systems, capital standards, established customers and equipment among others. The question here is on how well the company has been benefiting from such strengths and hence its performance. Company such as Boeing has embarked on technologies that help to reduce fuel consumption. Emirate Airline’s strengths are obtained from the economies of scale that the company enjoys due to its size (Doganis 82). It has also been involved in constant market analyses that have helped to equip the employees with the necessary skills in the diversified market. They have also been able to construct a corporate culture that has helped it to gain good reputation. Relevant skills, good reputation and other positive traits in my analysis mean that the company has been performing well.

Weaknesses

These refer to factors in the organization that falls under control of the management and detract the ability to attain and maintain competitive edge in the market. They may relate to deficiencies in resources, limited expertise, poor technologies, poor locations and inferior products in the organization. They demand improvements to successfully attain the market objectives. Emirate Airline, for example, has focused too much on diversification and high end acquisition despite the risks associated with such decision. Hanason PLC Company’s size, resulting from acquiring other companies, has demonstrated weaknesses relating to security of information. The level of these weaknesses in the analysis will help to tell how well the firm is performing.    

Opportunities

These refer to external attractive factors that provide chances for the company to prosper and exist. These opportunities mainly relate to marketing strategies that may be used to seize potential opportunities in the market. Opportunities help the company to expand the market, get positive perception from the market, improved demands and solutions to the prevailing contingencies (Doganis 87). The analysis also assess the nature of the opportunity to either being window or an ongoing opportunities. For example, Dell has been executing diversification strategies by producing a variety of products such as printers, toners and LCD televisions. This has helped it to exploit a market that was initially not well served. It has also expanded the market by adopting a low-cost strategy and now sells low-price computers to PC retailers in U.S.   

Threats

Threats refer to factors that may restrict the growth of the company and lead to deteriorating gains from operation. These factors are beyond the control of the management but may be converted into gains if appropriate contingency plans are established. These threats may include government regulations, devastating media coverage, price increase by suppliers, economic downtown and shrinking market among others (Awe 46). Analyzing these factor will help to understand how the business is performing. For example, the Abu Dhabi National Oil Company has been facing the threat of introduction of substitutes to the petroleum products. Boeing is also experiencing a reduced market due to the competitive strategies by its competitors in China and Europe.

Accounting Ratio Analysis

They provide invaluable information about the performance of the company. They are mainly in four broad categories as discussed below:

Liquidity Ratios

They include the current ratio which measures the ability of the company’s assets to cover liabilities. A ratio of three shows that the company has thrice as many current assets as the current liabilities. Acid-test ratios are used to show the strength of the company’s financial position. They indicate the liquidity level. Defensive interval is one of the liquidity ratios that show for how long the company can sustain itself without inflow of cash. High liquidity ratios mean that the company is performing well. Similar analyses have been applied in all other companies. 

Solvency Ratios

They are derived from the relationship that exists between the loans and bank overdrafts and equity, long term loans and bank overdraft. They show how easy or hard the company may get dissolved and is very relevant to the lenders. If the company analyzed has a high solvency ratio, then, it may have difficulties in accessing funds and can be termed to be performing poorly.

Efficiency Ratios

These ratios are used to analyze how the company is able to manage its liabilities and assets internally. The period taken to collect payment from the debtors is given by debtor’s turnover. If the company has a low ratio, tightened payment terms may be employed. The period taken to pay the creditors is provided by the creditors’ turnover. Late payments may indicate that the business is not performing. Stock turnover ratio shows the rate at which the stock is sold. If stock is held for long, then the business is not performing well and hence low profits are realized.

Profitability Ratios

These ratios relate the capital invested and the profit gained. They may be used to compare performance in different periods or with the competitor (Vine 72). These ratios are widely used so as to inform the shareholders how the returns are for their capital. It’s one of the most preferred ratio by analysts to establish whether companies are making any progress. If the ratio is found to be high, then the company is performing well.