Blue Diamonds Jewellery Worldwide PLC Part 2

Blue Diamonds Jewellery Worldwide PLC Part 2

 

Liquidity and efficiency ratios

Efficiency ratios simply measures how well organization utilize its resources to make a profit. Business managers use this ratios to measure how well the organization is operating within the business and achieving predetermined goals. At the same time they use it as a bench mark to measure how well they are able to face the competition and against the industry standards. Investors use this ratios to identify the weather or not the business is a profitable investment.

Liquidity ratios measures the companies’ ability to pay its short term obligations.  Organizations focusing on comparing their most liquid assets or those that can be easily converted in to cash against the its short term liabilities.

Under Liquidity and efficiency ratios following ratios are being used to measure the organizations performance from 2013 to 2017.

1.       Current ratio

Current Ratio =	Current Assets
	Current Liabilities

                                                                                                                                                           

This demonstrates the company’s ability to pay its short obligations. Current ratio of 2:1 considers as financially healthy. But it varies according to the Industry that the company functions. If a company’s ratio is less than 1 it illustrates the company may have problems in paying its short term obligations. Which show that the company is not financially healthy. If the current ratio if too high it may demonstrates the inefficiency of managing short term finance or current assets.

	2013	2014	2015	2016	2017
Total current assets	230,312,393	232,150,806	284,587,460	218,213,968	166,254,803
Total current liabilities	13,662,358	48,473,209	24,214,462	35,161,867	38,623,622
Current ratio	16.85744093	4.789260104	11.75278889	6.205983545	4.304485038
	16.86:1	4.79:1	11.75:1	6.21:1	4.30:1

When referring to the current ratio of “Blue Diamonds Jewellery Worldwide PLC” from 2013 to 2014 it demonstrates a significant drop down from 16.86 to 4.79 yet the company manages to maintain above the industry standards which is financially healthy. From 2014 to 2015 it shows a significant increment in the current ratio. Since the current ratio is significantly high this may illustrates inefficient management of short term financing. Eventually from 2015 to 2017 it shows a gradual drop down yet the company manages to maintain the ratio in financially healthy level.

2.       Acid Ratio

Acid-Test Ratio =	Quick  Assets
	Current Liabilities

Acid ratio or the quick ratio demonstrates the firms’ ability to pay its immediate liabilities. This measures the organizations’ most liquid assets in comparison to its short term obligations. If this ratio is less than 1 cannot pay their current liabilities. Since current ratios’ numerator consists of inventories it takes significant time to become cash. Therefore acid ratio illustrates a strong indication of companies’ ability to pay its short term obligations

	2013	2014	2015	2016	2017
Total current assets	230,312,393	232,150,806	284,587,460	218,213,968	166,254,803
Total current liabilities	13,662,358	48,473,209	24,214,462	35,161,867	38,623,622
Inventories	141,363,846	170,224,218	162,540,441	135,372,568	110,903,472
Acid ratio	6.510482817	1.27754257	5.040253176	2.356001176	1.433095296
	6.51:1	1.28:1	5.04:1	2.36:1	1.43:1

From 2013 to 2014 it demonstrates severe drop down from 6.51 to 1.28. Yet from 2014 to 2015 it bounces back to a closer proximity. From 2015 to 2017 the ratio is beginning to gradually decline. However regardless of the fluctuations the firm manages to maintain above the industry standards. That demonstrates a financially healthy environment.

 3.       Account Receivable Turnover

Accounts Receivable Turnover =	Sales on Account
	Average Accounts Receivable

This ratio measures the firms’ ability of extending credits and collecting debts. Within the year how many times the firm is able to convert its receivables to cash. Generally higher the number of the ratio is better for an organization

	2012	2013	2014	2015	2016	2017
Revenue		83,090,610	50,692,110	41,599,897	65,586,702	27,234,308
Trade and other receivables	21,443,230	23,400,435	21,832,927	6,452,309	29,934,309	29,193,359
Average Accounts Receivable		22,421,833	22,616,681	14,142,618	18,193,309	29,563,834
Accounts Receivable Turnover		3.71	2.24	2.94	3.60	0.92

It demonstrates that the ratio fluctuates over the five years period. But from 2016 to 2017 it illustrates a drastic drop in the ratio from 3.6 to 0.92. This shows that the firm started facing difficulties in collecting debts and facing problem with its debt policies by not able to extend its credits. The firm maintained the highest ratio in 2013 and lowest in 2017.

4.       Merchandise Turnover

Merchandise Turnover =	Cost of Goods Sold
	Average Inventory

This is an efficiency ratio that measures up how quickly a firm uses its supply of good over a given period of time. The firms’ ability to sold and replace the inventories changes according to the industry a firm functions. Higher the ratio the better a firm able to manage its inventories over a given period of time. 

	2012	2013	2014	2015	2016	2017
Cost of sales		60,870,608	53,021,284	55,192,074	87,111,596	50,459,644
Inventories	170,716,035	141,363,846	170,224,218	162,540,441	135,372,568	110,903,472
Average inventories		156,039,941	155,794,032	166,382,330	148,956,505	123,138,020
Merchandise Turnover		0.39	0.34	0.33	0.58	0.41

Overall it demonstrates a very low level rate within the five years period. The main reason for this could be the nature of inventories that the firm has. Unlike in the retail sectors it takes time to build a demand for floating diamonds jewellery and to replace inventories like diamonds, gems and gold. From 2013 to 2015 it demonstrates a gradual fall in the ratio. 2016 illustrates the highest ratio within the five years’ time period which is 0.58. 

5.       Days' Sales Uncollected

Days' Sales Uncollected =	Accounts Receivable	x 365
	Net Sales

This ratio helps to determine the length of time outstanding balances are carried within the firms’ receivables. The measures the length of time it takes a business to receive payments on an invoice after the sales made. This shows the amounts of sales made during the period, how quickly your customers are paying back, how efficient is your collection department, average time it take to collect  on your invoices.

	2013	2014	2015	2016	2017
Net Sales	83,090,610	50,692,110	41,599,897	65,586,702	27,234,308
Trade and other receivables	23,400,435	21,832,927	6,452,309	29,934,309	29,193,359
Days' Sales Uncollected	102.793309	157.2043136	56.6129475	166.5889952	391.255619

From 2013 to 2017 the number of days’ sales uncollected fluctuates. In 2015 it illustrates a higher liquidity of receivables which is 56 days. But in 2017 it demonstrates a significant reduction on the liquidity of the receivables, which is 391 days. That demonstrates a highly unfavorable condition for the organization. 

6.       Days' Sales in Inventory

Days' Sales in Inventory =	Ending Inventory	x 365
	Cost of Sale

This ratios explains how many day it will take to sell off its inventory. This is a critical ratio when it comes to inventory management of a firm. Low days’ sales of inventory indicates that management is effectively handling inventory. High days’ sales inventory indicates that the firm is not able to easily sell its inventory or the firm has obsolete inventory. But this ratio varies with the industry.

	2013	2014	2015	2016	2017
Cost of sales	60,870,608	53,021,284	55,192,074	87,111,596	50,459,644
Ending inventory	141,363,846	170,224,218	162,540,441	135,372,568	110,903,472
Days' Sales in Inventory	847.6636834	1171.828271	1074.923565	567.2148094	802.2206276

From 2013 to 2017 days’ sales in inventory fluctuates. Since Blue Diamonds Jewellery Worldwide PLC represents the Manufacturing industry depending on the nature of the product it could be possible that in average it’ll take significantly high number of days to turn in to cash. Comparing individual years across the five years period, 2016 illustrates the highest liquidity of inventory (lowest days’ sales in inventory). Whereas 2014 illustrates the lowest liquidity of inventory (highest days’ sales in inventory). Since these figures demonstrates unusually high figure as an overall impact it creates an unfavorable condition.

7.       Total Asset Turnover

Total Asset Turnover =	Revenues
	Average Total Assets

This ratio measures the firms’ ability to use its assets to generate sale or revenue. Higher asset turnover ratio is preferable. If a firm has got a lower asset turnover ratio it demonstrates inefficient use of assets to generate revenue. It make convince to try other methods to increase the efficiency of assets.

	2012	2013	2014	2015	2016	2017
Total assets	364,249,589	319,918,101	318,799,824	366,715,970	300,545,067	245,706,191
Average total assets		342,083,845	319,358,963	342,757,897	333,630,519	273,125,629
Revenue		83,090,610	50,692,110	41,599,897	65,586,702	27,234,308
Total Asset Turnover		0.242895	0.158731	0.121368	0.196585	0.099713

Concerning about the overall behavior of the ratio it demonstrates significantly lower amounts across the time period from 2013 to 2017. For every 1 RS it illustrates a lower amount of sales. This could be possible since the firm has got a significantly large asset base. In 2017 it shows a significant decline of the ratio from 0.19 to 0.09. This is a crucial situation where firms’ assets are not managed very well to create enough sales.

 Solvency ratios

1.       Debt Ratio

Debt Ratio =	Total Liabilities	x 100
	Total Assets

Debt ratio describes to extent to which the company is leveraged or it explains how much of assets are finance by debt. The lower the debt ratio it’s better for an organization. However this ratio changes according to the industry it operates.

	2013	2014	2015	2016	2017
Total Liabilities	18,763,233	53,897,272	31,401,296	41,286,268	57,686,992
Total assets	319,918,101	318,799,824	366,715,970	300,545,067	245,706,191
Debt Ratio	5.865011	16.906305	8.562838	13.73713	23.478038

From 2014it show a significant increment in the ratio. From2015 to 2017 it illustrates an increasing pattern of the ratio which is not good for the organization. This shows that portion of company assets are contributed by creditors significantly getting increase. This could happen when manufacturing organizations increasing the utilities. However it doesn’t demonstrate a favorable pattern for the organization 

2.       Equity Ratio

Equity Ratio =	Total Shareholders’ Equity	x 100
	Total Assets

Equity ratio explains how much of company assets are contributed by its owners.

	2013	2014	2015	2016	2017
Total equity	301,154,868	264,902,552	335,314,674	259,258,799	188,019,199
Total assets	319,918,101	318,799,824	366,715,970	300,545,067	245,706,191
Equity Ratio	94.13498863	83.09369456	91.43716157	86.26286952	76.52196236

In 2013 it demonstrates the highest contribution of owners within the company assets which is 94.13. Then from 2015 to 2017 it shows a decrease in the equity capital within the organizational assets. It explains the firm increases giving priority for debt financing rather than equity financing. Lack of investor contribution for the company creates an unfavorable condition.

3.       Times Interest Earned

Times Interest Earned =	Net Income Before Interest Expense and Income Tax
	Interest Expense

This ratio measures the company’s’ ability to pay its debts. A low ratio explains that the company struggles to pay debts or may have to face bankruptcy if it is unable to meet its obligations. A higher ratio indicates the company is able to settle off its obligations by cover up its expenses. Lenders and bond holders have much interest towards companies which has got a higher times interest earned ratio.

	2013	2014	2015	2016	2017
Loss/Profit before income tax	-25,683,879	-36,162,206	-85,866,372	-76,170,373	-71,009,731
Interest Expense	2,118,826	0	689,481	784,553	2,728,973
Net income Before Interest Expense and Income Tax	-23,565,053	-36,162,206	-85,176,891	-75,385,820	-68,280,758
Times Interest Earned	-11.12174997	0	-123.5376914	-96.08760657	-25.02067921

Here in “Blue Diamonds Jewellery Worldwide PLC” the times interest earned is becoming negative since the company has reported losses from 2013 to 2017. However in 2014 it indicates the company is in a condition where it’s not able to settle off its obligations. Which leads explain the fact this company’s’ operations not able to provide protection to its long-term creditors. This replicates a highly unfavorable condition. But it demonstrates it’s reducing its negative times interest earned from 2015 to 2017. 

 Profitability ratios

1.       Profit Margin

Profit Margin =	Net Income	x 100
	Net Sales

This is a profitability measure that explains how much income is kept with the company compared to its total revenue. This ratio able to compare the firms that are in the same industry. Higher the profit margin better for an organization.

	2013	2014	2015	2016	2017
Loss/Profit for the year	-26,218,207	-36,417,117	-87,314,348	-77,256,692	-71,849,014
Revenue	83,090,610	50,692,110	41,599,897	65,586,702	27,234,308
Profit Margin	-31.55375	-71.83981	-209.89078	-117.79323	-263.81803

From 2013 to 2017 it demonstrates a highly unfavorable condition due to continuous reporting of losses within the five years period. Even if the ratio fluctuates with the period it indicates a growing negative profit margin. In 2017 it shows the highest negative profit margin of -263.81%. Which explains 264% of every rupee in revenue is a loss.

2.       Gross Margin

Gross Margin =		Net sales - Cost of sales	x 100
		Net Sales

This ratio explains the revenue that a firm able to retain after paying off its direct costs that are related to producing products or providing services. Higher the gross margin better for an organization.

	2013	2014	2015	2016	2017
Revenue	83,090,610	50,692,110	41,599,897	65,586,702	27,234,308
Cost of sales	60,870,608	53,021,284	55,192,074	87,111,596	50,459,644
Gross profit	22220002	-2329174	-13592177	-21524894	-23225336
Gross margin	26.74189298	-4.594746599	-32.6735833	-32.81899126	-85.27969941

In “Blue Diamonds Jewellery Worldwide PLC” the highest gross margin shows in 2013 which is 26.74%. But from 2013 onwards due to the rising of gross losses and fluctuations in revenues gross margin starting to get decreased. From 2014 to 2017 the gross margin demonstrates as rising in a percentage of loss. In 2017 the gross margin is -85.27% which indicates a highly unfavorable condition.

3.       Return on Total Assets

Return On Total Assets =	Net Income	x 100
	Average Total Assets

This ratio explains the net income generated by total assets within a particular time of period. Further it says how efficiently assets within a period contributed to produce the net income of a firm. This is one of the best ratios to explain company’s overall profitability. 

	2012	2013	2014	2015	2016	2017
Loss/Profit for the year		-26,218,207	-36,417,117	-87,314,348	-77,256,692	-71,849,014
Total assets	364,249,589	319,918,101	318,799,824	366,715,970	300,545,067	245,706,191
Average total assets		342,083,845	319,358,963	342,757,897	333,630,519	273,125,629
Return On Total Assets		-0.07664	-0.11403	-0.25474	-0.23156	-0.26306

From 2013 to 2017 the overall profitability of the company according to the ratio demonstrates a declining pattern. In 2013 it demonstrates the lowest negative return on its assets which is -0.076 whereas 2017 exhibits the highest negative return on total asset. This could be a vulnerable situation for the “Blue Diamonds Jewellery Worldwide PLC” since the ratio is negative and it keeps growing the negative return annually.

 

4.       Return on Common Shareholders' Equity

Return on Common Shareholders' Equity =	Net Income - Preferred Dividends	x 100
	Average Shareholders' Equity

Generally this ratios measures how efficient the company is generating profits. This ratio explains how well the organization has placed owners’ investments to earn a net income. If the firm is able to generate higher net income from less amount of shareholder equity, that cab be considered as efficient. Higher the ratio better for the organization.

	2012	2013	2014	2015	2016	2017
Loss/Profit for the year		-26,218,207	-36,417,117	-87,314,348	-77,256,692	-71,849,014
Total equity	327,449,153	301,154,868	264,902,552	335,314,674	259,258,799	188,019,199
Average total Equity		314,302,011	283,028,710	300,108,613	297,286,737	223,638,999
Return on common shareholders' equity		-0.083417	-0.128669	-0.290942	-0.259873	-0.321272

From 2013 to 2015 it demonstrates a negatively rising ration. In 2016 it illustrates a slight decline in the negative return. But it 2017 it demonstrate a significant increment of negative return of 32%. Again this indicates the organizations efficiency of making profits at a vulnerable position. Continuation of this pattern indicates organization has to shut down its operations.

5.       Book Value per Common Share

Book Value Per Common Share =	Shareholders' Equity Applicable to Common Shares	x 100
	Number of Common Shares Outstanding

This ratio measures the value of share holders’ equity to the number of shares outstanding. This could possibly indicates the value of a company’s stock.it demonstrates how much of equity assigned for each outstanding common stock.

	2013	2014	2015	2016	2017
Total equity	301,154,868	264,902,552	335,314,674	259,258,799	188,019,199
Number of shares	256,670,691	256,670,691	330,870,171	401,235,405	401,235,405
Book value per common share	1.173312258	1.032071683	1.01343277	0.646151351	0.468600718

In Blue Diamonds Jewellery Worldwide PLC” from 2013 to 2017 the book value for common share demonstrates a declining pattern. When concerning about the ratio as a whole it demonstrates a very low level ratio in each consecutive year within the five years period. Which indicates an unfavorable condition for the company. 

6.       Basic Earnings per Share

Basic Earnings Per    Share=	Net Income - Preferred Dividends		x 100
	Weighted Average Common Shares Outstanding

Basic earnings per share explains the amount of net income earned per share of outstanding stock. Higher the earnings per share better for an organization.

	2013	2014	2015	2016	2017
Loss/Profit for the year	-26,218,207	-36,417,117	-87,314,348	-77,256,692	-71,849,014
Number of shares	256,670,691	256,670,691	330,870,171	401,235,405	401,235,405
Basic earnings per share	-0.102147	-0.141883	-0.263893	-0.192547	-0.179069

From 2013 to 2017 it illustrates a negative earnings per share. The main reason is the company is facing continuous losses in average it shows an increment from 2013 to 2014 and show a decline in losses from 2015 to 2017.this replicates on the ratio in the same way. 2015 represent the lowest earning per share which is -26%.

Market ratios

1.       Price Earnings Ratio

Price Earnings Ratio  =	Market Price Per Share
	Earnings Per share

This ratios explains relative to the company’s’ earnings how much investors are willing to pay for a stock. Higher the price earnings ratio it’s better for an organization.

	2013	2014	2015	2016	2017
Marker price per share (voting)	3	3.4	1.4	1	0.9
Marker price per share (none voting)	1.5	1.1	0.6	0.4	0.3
Basic earnings per share	-0.102147	-0.141883	-0.263893	-0.192547	-0.179069
Price Earnings Ratio (voting)	-29.36936431	-23.96346612	-5.305178931	-5.19353592	-5.025982187
Price Earnings Ratio (none voting)	-14.68468216	-7.752886097	-2.273648113	-2.077414368	-1.675327396

When calculating the price earnings ratio the market price per share has taken voting and none voting separately. From 2013 to 2017 as overall ratio it illustrates a negative value. Which indicated a bad condition for the company. The price earnings ratios of both voting and none voting, they show from 2013 to 2017 the negative price earnings are getting decline.

2.       Dividend Yield

Dividend Yield =	Annual Dividends Per Share
	Market Price Per Share

This ratio measures relative to the firms’ share price how much the firm is able to pay as dividends each year

 

	2013	2014	2015	2016	2017
Annual Dividends Per Share
Marker price per share (voting)	3	3.4	1.4	1	0.9
Marker price per share (none voting)	1.5	1.1	0.6	0.4	0.3
Marker price per share (voting)	0	0	0	0	0
Marker price per share (none voting)	0	0	0	0	0

From 2013 to 2017 “Blue Diamonds Jewellery Worldwide PLC” has not paid any annual dividend. It becomes difficult to use this ratio to measure the performance due to no dividends has been paid within the five years period.

 Conclusion

When referring to above analysis of “Blue Diamonds Jewellery Worldwide PLC” above four types of analysis provide significant broad array of details in order to conduct its business activities for forcible time of period. 

In a nutshell when concerning about organizations liquidity and efficiency it demonstrates a decent level of liquidity specially when concerning about acid ratio. But the organization demonstrate a higher level of inefficiency when looking at asset turnover and day’s sales in inventory ratios it explains.  In terms of solvency again it demonstrate a poor level. The liabilities of the organization demonstrate an increment whereas assets demonstrate a decline from 2013 to 2017. Lack of solvency makes the organization function at a vulnerable plat form. In term of Profitability it indicates a higher unprofitability especially due to the increment in production cost. Market ratios demonstrate negative values which demonstrates poor performance in the market.

Trend analysis able to demonstrate significant trends within the organizations, whereas horizontal and vertical analysis able to provide important behavioral patterns within the organization in terms of organizations profitability and its financial position. When conducting these analysis it has got sinficantly clear that 2015 has become a turning point for “Blue Diamonds Jewellery Worldwide PLC”. However from 2015 onwards it demonstrates a declining pattern in liabilities and losses. Which can be considered as positive behavioral trends. But declining of assets base and equity bas along with reducing revenues creates devastating impact to the organization eventually.