# Paper Example on Business Management

2021-06-02
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Premier Legal Services ( P.S.L ) commercial law firm nature of business mainly incorporates multi-sectoral litigation services to its wide range of client base. The debtors day figure of the company stands at 107 days which means that the average payment of proceeds stands a little longer. The extended time may affect the efficiency of the company. In comparison to other litigation firms in the sector like FSP, PLS has a higher debtor day figure by eight days. The difference means that PSL competitors have an operational efficiency over the firm. This report will use financial analysis ratio to determine the performance levels of PSL and that of its competitor FSP. Below are the calculated financial analysis ratios

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2 Findings

2.1 Profitability Ratios

Profitability will be done using two different sources which include:-

1. Company assets

2. Investments or equity

We will use two different types of profit ratios, i.e., return on Total assets Margin, and total returns on Equity Ratios using the formulas shown below

i. RTA=Net Profit after Taxes

Total Assets

ii. Returns on Equity=Net Profit after Taxes

Total Equity

Premier Legal Services ( PLS)

F/Y 2016 F/Y 2015

Return On Total Assets Return On Total Assets

108,570 = 0.351 106,078 = 0.367

309,357 288,731

Return on Equity Return on Equity

108,570 =0.487 109,768 =0.472

223,103 224,522

Premier Legal Services THE RETURN ON TOTAL ASSETS

The returns on total assets for PSL is 35% in the F/Y 2016 which indicates that the company can convert the investment into income a high rate. However, this is a decline from 2015 by 1.6 %.The decline is due to an increase of debtors by 24,240,000 in 2016. Internally, PSL performed poorly in 2016 than in 2015.

RETURNS ON EQUITY

PSL registered a ROE of 0.49 per every 1 of investors money in 2016, an increase of \$0.01 from 2015. The growth is an indication of better use of investors fund by PLS management by reduction of operating costs by \$5,581,000 in 2016.The efficient reduction of operating cost, in turn, increased the returns from investments. Reduction of operating cost is mainly a result of proper management decisions within PLS.

Fredrick & Ferdinand Solicitors( FPS)

F/Y 2016 F/Y 2015

Return On Total Assets Return On Total Assets

176,023 = 0.51 195,497 = 0.51

344,993 384402

Return on Equity Return on Equity

176,023 =0.87 195,497 =0.811

201,859 240,912

ROA

FSP return on assets in 2016 was at 0.51 return rate for every \$1 of investors money. The income generated was constant in 2016 and 2015 which means the changes in both net income and total asset equated. The increase in staff costs was effectively counter by a reduction of operational cost creating an equilibrium which created stagnation of the return on assets.

ROE

FSP return on equity in 2016 was at 0.87 return rate for every \$1 of investors money which was a \$ 0.06 increase from 2015. Operational costs was at an all time minimal level in 2016

PLS and FSP profitability ratios comparison

In comparison to its competitor FSP, PLS performed poorly in both its return on assets and returned on equity to investors. Not only did PLS maintain a constant return on asset while PLS registered a decline but also FSP had a higher return on shareholders equity which grew at a higher margin than PLS. The company increased its debtors in 2016 and also its staff which strained both income levels from assets and also equity. The debts grew by 24,240,000, and the wage increased by \$79,000 while also there was an additional increase of workers of 33 despite

2.2 Insolvency and Liquidity

We shall determine the Insolvency and Liquidity using either of the three ratios of measuring Liquidity of a company which includes:

1) Current Ratio = Total Current Assets

Total Current Liabilities

2) Acid-Test Ratio=Cash + Government Securities + Receivables

Total Current Liabilities

3) Leverage Ratio = Total Liabilities

Net Worth

In the case PLS and FSP we shall use the Current ratio as the preferred to determine the liquidity level of each of the two firms.

Premier Legal Services Fredrick & Ferdinand Solicitors

Current Ratios Current Ratios

309,357 = 2.61 344,993 = 2.13

117789 161,285

Using the results from the calculation, it is clear that Premier Legal Services is more has a higher liquidity ratio than FSP by 0.5 %. While PSL turnover declined significantly, FSP managed to keep a proportional decrease in its turnover in correlation to cost of operations. Also, FSP managed to increase its tangible assets by \$1,964,00 while PLS asset declined. The change in assets caused poor performance for PLS and a better performance by FSP. Also the PLS debt went u[ which increased their liabilities hence a decline in their liquidity. Finally, FSP was able to maintain a lower average persons employed than the company.

2.3 Operational Efficiency

We shall use Total Asset Turnover ratio to calculate each of the two firms Operation Efficiency Levels using the formula shown below.

Total Asset Turnover = Net Sales

Average Total Assets

PSL FSP

401,363 = 2.35 592,043 = 3.2

(309,357+31,535) (344,993+18151)

2 2

The operational cost of FSP is way much higher than by 0.85%. Higher operational efficiency ratio means that FSP is in a position generate more income per every dollar of its capital assets making it more competitive than PSL.

2.4 Invested Capital

The invested capital will be calculated using the formula shown below.

Return on Invested Capital = Net Profit after Taxes

Invested Capital

PSL FSP

108,570 = 0.32 176,023 = 0.48

(117,789+223,103) (161,285+201859)

The results indicate that FSP was able to use its invested capital more efficiently by ensuring a proportional utility of staff to maintain returns at a better manageable level

Section 2

Organic business growth as an approach to grow and expand a business involves growing the business from within the organization. For instance, Premier Legal Services may venture into the newly opened markets in China as business growth strategy. This approach offers the company a commercial edge of growing with speed and implementing new growth models as opposed to when they merge domestically with local firms (Gielnik, Zacher and Schmitt). PSL understands its organizational and management structures clearly better than anyone else in this case has an added advantage to quickly adapt and plan effectively.

Although a merger may bring in new additional skills and a capital base, it is also a deterrent to making quick and effective decisions (Hauser). A merger has the risk of slowing PSL because it pumps a fresh pack of ideas to how PSL operate and implements its decisions. Mergers will only help create a domestic dominance which is unfavorable in the long run. Domestic markets mostly fluctuate and may be affected by shocks in the industry. Expanding to new markets offers a form of Diversity which is more effective and safer in the long run in terms of doing business.

The drastic expansion and management changes that comes with every merger are strenuous to the growth cycle of PSL, and a well-calculated expansion to new markets is better, safer and in the long run more beneficial to Premier Legal Service. It's the preferable choice for the interests of the firm. It is important that the business grows from inside and using the tools and tactics it has developed in the period it has been operational, it stands a good chance to emerge stronger and more profitable.

References

Gielnik, Michael M., Hannes Zacher, and Antje Schmitt. "How Small Business Managers Age And Focus On Opportunities Affect Business Growth: A Mediated Moderation Growth Model". Journal of Small Business Management (2016): n. pag. Web.

Hauser, Philip M. "Business Implications Of Population Growth". Business Horizons 3.2 (1960): 87-96. Web.

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