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Lisa Estimated That Out And About Plc Will Need To Raise £14 Million For Its New Marketing Budget. Using Appendix B , And Any Other Relevant Data, Assess Out And About Plc Ís Current Financial Position And Recommend How

538 words - 3 pages

Out and About plc

Capital is the funds that are invested into a business to be used for the growth and expansion of a business. In the case of Out and About plc, they are going to use this capital in order to fund its marketing budget.

Out and About have a current ratio of 0.87:1 and an acid test ratio to one. This suggests that they are suffering from very severe liquidity problems especially short term liquidity. As they have £800 million worth of non-current assets, it would be useful for them to sell off some of these assets because it will increase the amount of cash they have, thus also increasing their current assets figure. Also, they could then use this cash to also reduce its current ...view middle of the document...

If these bad debts start to build up, this can cause a business's expenses to increase and the value of the receivables asset to decrease.

One major concern for Out and About plc is its profit margins. They had made a gross profit of £158 million and an operating profit of £16 million. This means that they have a gross profit margin of 53.5% and a net profit margin of only 5.4%. This drop of almost 50% raises many questions about Out and About plc ability of managing its cost. This huge drop in profit shows that they are not very good at managing their indirect costs; they are not able to manage their expenses effectively.

This rise is expenses may be down to their inventories. Their inventories alone make up 46% of their current assets also; their inventory turnover is only 2.14. This low figure is very unusual for a retailing business such as Out and About which suggests they are holding onto too much stock. This then also causes stockholding costs to increase causing the expenses of the business to increase.

Overall, I feel that the best way for Out and About plc to raise their capital is by borrowing money. As they only have a gearing ratio of 35.9%, this suggests that they have potential to borrow money. However, in order to borrow money, creditors requires a business to have a strong income statement and balance sheet, in the case of Out and About they are both weak. Due to both profitability and liquidity problems, this may prevent Out and About plc to borrow any money as creditors, may feel that they won't get their money back.

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