The Regina Company Case Study Solution
Evaluation of financial performance of Regina:
The liquidity position of The Regina Company appears to be very good, both the current ratio and quick ratio of Regina are increasing in the year 1988 as compared to the year 1987. The ideal current and quick ratio for any company operating in any sector should be approximately 2:1 and 1:1 respectively, both these liquidity ratios of Regina are above from this benchmark which depicts the sound financial performance of the company. The higher liquidity ratios will enable the management of Regina to settle the current liabilities from their existing assets without taking any short-term loan such as bank overdraft.
The profitability situation of the company also appears to be very positive, some good increment in the level of profitability has been seen in the performance of Regina. Notably the gross profit margin has been increased drastically, although the net profit margin has also been increased the increment in this is very slight which could be justified because of the fact that the company has incurred substantial marketing expenditure during the year. Same is the case for return on assets and equity.
The accounts receivable and inventory turnover days increased considerably in the year 1988; this can have some negative implications on the business of Regina. The customers are taking it very long to pay their debts which increase the chances for bad debts. The chances of inventory being damaged or obsolete are also higher because the management is holding it longer. The accounts payable days are decreasing which could improve the relations of Regina with its creditors, but it can be argued that the current trends in efficiency ratios could result in liquidity problems because the cash operating cycle is longer.
The Regina Company Harvard Case Solution & Analysis
The gearing ratio of Regina enlarged by a rapid pace in the year 1988 which could be very dangerous for the company. The company will find it very difficult to obtain additional funds because the risk of the investors will be substantially high, even if the lender agrees to lend Regina the interest rates will be substantially higher which could affect the profitability of the company. Moreover, the debt provider can impose certain restrictive covenants on Regina which will ultimately reduce the pace of growth. The interest cover ratio of Regina is decreasing which is primarily due to the drastic growth in debts.
Financial projections on the basis of 1987 results:
By looking at the financial statements as of June 30, 1987, it is expected that the revenues for the year 1988 should have been $215,958,690. The receivables should have been $86,017,020, and the inventory should have been $32,969,600. All these figures are calculated on the basis of movements in sales, receivables, and inventories in the year 1987 and without taking into effect any non-financial and industrial and economic factors................
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