A financial performance analysis of bundura nickel ltd by mr lenon watambwa (2019) abstract
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- Quick assets/daily cash expenses Details 2016 2017 2018
- Liquidity ratios (Graphical explanation)
| Defensive Interval Ratio (DIR) Electronic copy available at https://ssrn.com/abstract=3521211 21 This ratio refers to the period in which the company can continue to pay the expenses of the existing liquidity without resorting to obtain cash flows from outside the company (Robinson et al., 2015). Quick assets/daily cash expenses Details 2016 2017 2018 Quick assets $16,728,582 $12,788,243 $19,144,407 Daily cash expenses $37,774.855 $37,637.115 $32,835.351 Quick ratio 442.85 339.778 583.04255 Table1.3 Analysis The DIR for BNC is high for all the three years showing the number of days can manage its daily operating expenses using most of its liquid assets without resorting to external financial resources or its non-current assets. For all the three years, BNC’s liquidity risk is low and that it can run its operations efficiently. This ratio is considered more useful than all the above as it compares assets to expenses rather than comparing assets to liabilities. However in 2018, the ratio is highest, this does not necessarily mean low liquidity risk only but possibly the company failing to employ capital efficiently to earn higher returns or perhaps since mining is capital intensive, the company could be deploying its capital in large scale projects (Trojan shaft deepening project) which could create long term value especially considering its change in strategy. Liquidity ratios (Graphical explanation) Fig 1.1 0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 16000000 2016 2017 LINE GRAPH Cash and short term deposits Trade and other receivables Trade and other payables Electronic copy available at https://ssrn.com/abstract=3521211 22 The company is facing a liquidity crisis, a closer look at the diagram above shows that at any given point from 2016-2018 its trade payables are more than its cash and short term obligations. The company is selling most of its products on credit and this could be the reason why it is failing to meet its short term obligation hence it has to put in place stringent credit control policies to make sure that they minimise defaulters. Download 1.23 Mb. Share with your friends:
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