Noel Gifts International Limited Balance Sheet Report Essay Example

had a high acid test ratio, showing that they have substantial cash reserves to immediately pay off their short-term obligations. In 2012, the gifts industry had an acid test ratio of 0.61, while the company's ratio was 3.21. The average acid test ratio for the gifts industry over the past 5 years is currently 0.0.

Noel Gifts International has consistently outperformed the gifts industry in this aspect, demonstrating their ability to pay off short-term obligations even during more challenging circumstances. The Group's Balance Sheets (‘08 to ‘12)* show that the only Non-current Liability listed is Deferred Tax, indicating the company has low debt.

The Debt Ratio Graph indicates that the company is financially stable. They have not taken any Bank Loans or issued Bonds, so there are no Interest Expenses to service. Although their favorable financial condition has been improving over the years, they have not used it to obtain loans for expanding the company. However, their high Time Interest Earned Ratio suggests that they can meet debt payment obligations. In 2011, this ratio was approximately 747, meaning they can cover interest charges 747 times over. In the previous year, there were no Interest Charges, resulting in an Infinity value for this Ratio. This positions them well for obtaining loans.

To prevent slowdown, I recommend that the company implements approaches for annual revenue growth and expansion. One potential strategy is to secure a loan of approximately $27 million, which would contribute to increased income. With this sum, the company's overall debt ratio could reach an acceptable level of 0.5. This suggested plan is backed by the fact that the company presently possesses

more than $9 million in cash and has liabilities of only about $2.5 million. Moreover, a substantial portion of the company's cash is invested in fixed deposits, generating interest.

The company's approach to investment is very low-risk and discouraged. With a 10% margin on net revenue and 38% of total assets in investment properties, the potential earnings go beyond just the interest rate of a fixed deposit. Due to scarcity of land in Singapore and the need for housing developments, the prices of investment properties are rising. I firmly believe that the company can cover the loan interest through increased revenue and gains from fair value investments.

Despite considering all the factors mentioned, the company still has ample room to increase its net income. Our main concern is how this will affect our cash flow, as we currently allocate approximately $1.5 million for dividends and there is a possibility of higher payments due to interest. The current interest rate for companies in Singapore stands at around 5.4%. However, when taking into account a 10% margin on sales, a return on assets surpassing 10%, and operational margins of about 44%, it becomes clear that the interest expense will not be significant compared to the income increase.

The company's robust financial position, indicated by its share capital and accumulated reserves, allows it to borrow and invest money efficiently. The company does not have worries about repaying the loan as long as the borrowed amount is used effectively. Furthermore, the funds can be utilized for acquiring a competitor and covering its net assets. These factors ultimately enable the company to endure minor setbacks in the

long run.

Noel, being the largest player, has the capability to acquire a smaller company and can also invest some of its funds in real estate properties. The real estate investments yielded a 15% return this year; however, it is important to exercise caution and avoid investing all the money in real estate due to the risks involved. Furthermore, it would be prudent for the company to consider purchasing its own shares with any surplus amount as there are advantages associated with this action that will be discussed later. Therefore, my recommendation is for the company to obtain additional funds in order to expand its operations and pursue opportunities for real estate investment, ultimately increasing its income and overall performance for future growth.

The company's proposal for improving its performance is supported by its superior results compared to the industry average. The company excels in several areas, including return on equity, return on assets, gross margin, operating margin, and net margin. Additionally, it demonstrates stronger solvency. In the past 5 years, the P/E ratio has consistently been lower than the industry norm of 16, ranging from 3 to 7. However, both the P/E ratio and stock prices have recently declined due to a lack of investor confidence. This decrease in confidence can be attributed to the significant number of shares (102 million) issued in the market over time, resulting in a decrease in earnings per share.

In addition, the company's dividend growth rate in the last five years has worsened perceptions about investing. Suggestions for increasing share prices include recognizing that the company is seen as not growing anymore and being in

a stagnant phase (reaching maturity without further potential). Horizontal Analysis* illustrates that NOEL's revenue has declined, leading to a belief that without additional expansion and growth strategies, the company lacks future growth prospects.

The company's working capital is restricted as most of its cash is invested in fixed deposits. To demonstrate potential growth and tackle this issue, I propose borrowing money to expand operations. Furthermore, the company offers a dividend yield of 0.065 Cents per Share, presenting an opportunity for management to utilize some of the borrowed funds for purchasing treasury shares.

Currently, the company's shares are priced at 21 cents. If they invest $2 million, they can buy back around 10 million shares, which is expected to increase the company's EPS by about 10% at the current level. This indicates that the shares are undervalued. Moreover, repurchasing treasury shares enables the company to quickly sell them in times of financial difficulties when immediate cash is required. I anticipate that these actions will result in higher trading activity and elevated share prices.

In conclusion,

To improve its financial position and potential for growth, the company should consider taking calculated risks. Despite a slight decline in revenues, we are confident that further investment can address this issue given the company's mature state. It is also important to take into account the company's involvement in real estate transactions. Given the thriving real estate industry in Singapore, making prudent investment decisions will ensure a promising future for the company.

The company is currently surpassing its competitors in various important areas and can use this advantage to grow the business. The predictions below depend

on whether the company agrees to take the suggested actions. If the company rejects the recommendations, it will not progress and exhibit signs of growth slowdown, eventually being surpassed by continuously expanding competitors.

In addition, the company's share prices are likely to be bearish as it is currently not showing any potential. However, the company does have a positive aspect in its investments in properties, which may increase in value in the future. If the company accepts the proposed recommendations, its share prices will definitely increase as investors perceive more potential. Furthermore, the profits of the company will also increase progressively due to leveraging.