Corporate Finance Case Study Example | Topics and Well Written Essays - 2500 words

Corporate Finance - Case Study Example The company's other division, ALSO, provides 'information and communications technology and consumer electronics in the wholesale and logistics sectors (Google Finance 2009).' Schindler operates in 125 countries, with its 45,063 employees around the world, while most of its ALSO operations cater to European customers (Yahoo Finance). A firm's liquidity is measured by certain financial ratios which include the current ratio, quick ratio, and average collection period. Schindler Holding's current ratio is 1.45 in 2004, 1.3 in 2005, 1.31 in 2006, 1.29 in 2007, and 1.33 in 2008 (see Table 1 in the Appendices). The company's quick ratio is 1.06 in 2004, 0.92 in 2005, 0.87 in 2006, 0.84 in 2007, and 0.95 in 2008 (see Table 1 in the Appendices). As for the company's average collection period, the company collects its accounts receivable in 53.81 days in 2004, 58.29 days in 2005, 59.73 days in 2006, 52.13 days in 2007 and 47.45 days in 2008 (see Table 1 in the Appendices). Exhibit 1 in the Appendices shows the trend of Schindler Holding's current ratio and quick ratio. The company's current ratio has declined from 2004 to 2005, increased from 2005 to 2006 then declined again to 2007. From 2007 to 2008, this ratio is increasing. The company's quick ratio on the other hand has faced a constant decline from 2004 up to 2007. In 2008, the company's quick ratio has increased from 2007. The difference in the trend between the two ratios tells one thing-while the company has increased its current assets in 2006, the increase is mainly attributed to assets aside from cash, short-term marketable securities and accounts receivable. Exhibit 3 in the Appendices shows an lengthening collection period from 2004 to 2006. From 2006 to 2008, however, the trend goes downward. This means the company has cut down on its collection period. The shorter the collection period, the shorter the operating cycle is and cash comes back to the company from its operations more quickly. ii. Operating efficiency The company's operating efficiency is measured by ratios such as the company's inventory turnover, fixed asset turnover, and total asset turnover. Schindler Holding's inventory turnover in 2004 is 22.53 times, 21 times in 2005, 17,87 times in 2006, 16.13 times in 2007, and 18.71 times in 2008 (see Table 1 in Appendices). Exhibit 2 shows the trend for this ratio; from 2004 up to 2007, Schindler Holding's inventory turnover ratio is in a downward trend before it goes up in 2008. Since inventory turnover ratio determines how fast a company disposes inventories and turn into cost of goods sold to the company. The company has become less efficient in converting its inventories into sales from 2004 to 2007, until it has improved its efficiency in 2008. The company's fixed asset turnover ratio measures how hard the company's fixed assets are employed in terms of contributing to the company's revenues. In 2004, this figure amounts to 15.42 times, 20.34 times in 2005, 22.97 in 2006, 27.29 times in 2007 and 28.83 times in 2008 (see Table 1 in the Appendices). This ratio has an upward trend from 2004 to 2008 (Exhibit 2), which means the company increases the efficiency of its fixed assets, in relation to revenue generation. The company's total asset turno