Summary:

Caltron Ltd was founded in 1971 by the Jenny Jones, the owner of the Pulsar computer
with the aim to supply the electronic calculators to the scientific and business
communities. Despite the rigorous competition in the industry, Jones managed to survive
Pulsar a very profitable market leader. When calculators were first launched, they were
profitable. The calculators weres old at high margin because at that time there was no
competition. However, now the competition has increased, resulting in companies are
adopting the high volume, low-cost strategy. Due to the increased competition to
maintain the low cost of the calculators, in 2002 and 2003, Caltron heavily invested in
new equipment to automate the production process and reduce the labor costs.
Furthermore, new plants became difficult to install and it required training for workers
which require lots of time. By 2003, the factory operations improved. Moreover, in order
to increase the revenue, Caltron had increased the sales force and administrative staff.
The sales force was on the straight salary as per the collective agreement.

Caltron Ltd. In 1999, Pulsar’s chairman and CEO, Jenny Jones appointed her daughter-in-
law, Kyla Jacobs-Jones to run Caltron. Caltron, a calculator manufacturer, was fully owned
by Pulsar. Caltron was facing stiff competition from abroad, and in 2001 members of
Pulsar’s board of directors began to put pressure on Jones to divest it. Jacobs-Jones was
given two years to turn the unit around before revisiting the decision to divest Caltron. In
2004, Dan O’Shea, CA, CFA, a corporate financial consultant with KPMG has been hired to
review and analyze the company operations and make recommendations

Problem Statement:

During 2001, Caltron Ltd felt intense pressure from the independent board members.
Furthermore, the company’s performance worsened as compared to its competitors.
Moreover, increased competition and low-wage developing countries caused the
problem.
Analysis

Cash flow statement analysis

Operation Activities

Caltron deals with electronic calculators which has 6,854,000 sales in 2003 from
5,128,800 in20102. The business has neglected to develop the income from working
actives extra time due to competition from foreign countries which has eventually made
other business opt for low rate calculator productions. Caltron go for do and die to shield
its rapport and remain the core calculator operations It has additionally not produced a
positive trade stream out its working exercises over the time due to low current ratio of
2.7. they incorporate new production systems and machines with high cost of instalment.
 the low level skill with employees render business into low performance. there was high
volume of calculator but little or no market due to flooding of cheap substitutes. The
company had to employ more sales and administrative for more services although they
were less competent. this compelled business to depend on outside financing which
won't maintain the business over a drawn out stretch of time

Financing Activities

The organization's income explanations demonstrate a negative money streams from

financing exercises since the calculators were given at $30 for both retailers and whole
sales. the new rule of extra charge on interest was to curb the wide rate of repayment
charges which as on terms of2/10and increasing the sales . It implies that the organization
is utilizing its money from working exercises to pay profits and pay off its obligations. The
negative income from financing exercises demonstrates that the business is encountering
money related troubles during the time spent developing itself. Due to mild recession,
caltron were allowed only $1000000 by Bank of Montreal although they armies need
more with current ratio of 2.0. eventually he company suspended all its payments due to
expansion and modernization

Investing activities

The company has invested on purchase of plant, property and equipment. The spending
in 2002was slightly higher with (3.08) but at least dropped to (5.18) has a negative cash
flow from investing activities. It means that the business is still growing and it is investing
in new assets to

Ratio Analysis

2003 2002 2001

Current Assets 2,672,775.00 1,914,520.00 1,124,000.00
Current Liabilities 1,923,437.00 1,054,189.00 375,650.00
Current Ratio 1.39 1.82 2.99

Current ratio: By looking at the current ratio, it seems that the current ratio has decreased
from 2.99 (2001) to 1.39 (2003) over the two years periods. This shows that the company
has decreased its ability to pay its liability. However, the 1.39 is also enough to pay its
liabilities. When comparing the current liabilities of Caltron Ltd with the industry average,
the performance seems to be poor as the industry average current ratio is 2.7 times.

2003 2002 2001

Cash 24,000.00 10,000.00 9,000.00
Current Liabilities 1,924,437.00 1,054,189.00 375,650.00
 Current Ratio 0.01 0.01 0.02

Cash ratio: Cash ratios show the liquidity of the company that how much cash is available
to pay is a liability. The cash ratio of the company is 0.01 which indicates poor
performance as the industry average is 0.45. The reason of the decreased the ratio is that
the company has heavily invested in plants to automate the production process.

2003 2002 2001

Days 365 365 365
COGS 5,825,900.00 4,308,192.00 2,422,280.00
Inventory 1,716,480.00 1,287,360.00 518,460.00
Inventory Turnover 107.54 109.07 78.12

Inventory turnover in days: Furthermore, inventory days are also increasing on yearly
basis from 78 days (2001) to 107 days (2003), the industry average is 60 days. The increase
in the inventory days indicates that there may be outdated stock or obsolete stock
because the company is operating in a dynamic environment.

2003 2002 2001

Days 365 365 365
Accounts Receivable 878,726.00 627,160.00 301,200.00
Sales 6,854,000.00 5,128,800.00 2,954,000.00
Receivable Turnover 46.80 44.63 37.22

Account receivable turnover in days: The ratio has also increased from the 37 days to 46
days, having industry average ratio of 32 days. This indicates that recovery department of
Caltron is unable to recover due amount from the customers. However, there may be
other reason that some of the receivables may be bad debt.

2003 2002 2001

Days 365 365 365
Accounts Receivable 948,802.00 511,267.00 145,600.00
Sales 5,825,900.00 4,308,192.00 2,422,280.00
Payable Turnover 59.44 43.32 21.94

Accounts payable turnover in days: The payable days have significantly increased from 22
days (2001) to 59 days (2003). This again clearly indicates the cash problems.
Furthermore, this may create problems in future that the supplier may not supplythe
material in the future.
2003 2002 2001
Inventory Turnover 107.54 109.07 78.12
 Recevable Turnover 46.8 44.63 37.22
Payable Turnover 59.44 43.32 21.94
Inventory Turnover 94.90 110.38 93.40

Cash conversion cycle: Overall cash conversion cycle has improved from 110 (2002) to 94
(2003), but it again shows the poor performance of the company when compared to
industry average of 77 days.

2003 2002 2001

Sales 5,825,900.00 4,308,192.00 2,422,280.00
Fixed Assets 1,706,363.00 1,402,500.00 691,000.00
Total Assets 3,995,978.00 3,053,860.00 1,668,800.00
Fixed Asset Turnover 3.41 3.07 3.51
Total Assets Turnover 1.46 1.41 1.45

Fixed asset and total asset turnover ratio: Again these ratios show the decreased
performance when compared to industry averages with 7.0 fixed asset turnover and 2.5
total asset turnover. These ratios show how efficiently the company is developing its
assets to generate revenues.

Debt ratio and cost of borrowing: Debt ratio shows that how much debt is injected in the
total capital. The ration gas increased from the 33% (2001) to 62% (2003) indicates that
the company is relying on debt rather than the equity. The industry average debt ratio is
40%, however, the borrowing ratio has also increased. This indicates that the company is
bearing high cost of acquiring funds.

2003 2002 2001

Interest Expense 215,683.00 140,847.00 37,875.00
Net Income (EBIT) 222,700.00 190,768.00 276,500.00
Return on Equity 1.03 1.35 7.30

Time’s interest earned: The current time interest earned is 1.03, which shows that the
company pays only one-time interest from its profits. The performance seems to be poor
when compared with the industry average of the 8 times.

2,003.00 2,002.00 2,001.00

Sale 5,825,900.00 4,308,192.00 2,422,280.00
Gross
1,028,100.00 820,608.00 531,720.00
Profit
Gross Profit Margin 0.18 0.19 0.22
 2,003.00 2,002.00 2,001.00
Sale 5,825,900.00 4,308,192.00 2,422,280.00
Operating Income 222,700.00 190,768.00 276,500.00
Operating Income
Margin 0.04 0.04 0.11

2,003.00 2,002.00 2,001.00

Sale 5,825,900.00 4,308,192.00 2,422,280.00
Net Income 7,017.00 49,921.00 238,625.00
Net Income Margin 0.00 0.01 0.10

Profitability ratios (gross profit, operating profit, net profit): After looking at the ratios,
the performance seems to be poor when comparing with the industry average. This
indicates that the company is unable to manage its cost in relation to revenues. The
increased cost may be due to installing the new plant in this years, these are the one-time
cost, which may reduce in future periods

2003 2002 2001

Total
3,995,978.00 3,053,860.00 1,668,800.00
Assets
Net
7,017.00 49,921.00 238,625.00
Income
Return on Asset 0.002 0.02 0.14

2003 2002 2001

Total
1,003,881.00 999,671.00 969,718.00
Equity
Net
7,017.00 49,921.00 238,625.00
Income
Return on Equity 0.007 0.05 0.25

Return on Assets and Return on Equity: Again these ratios show the decreased
performance when compared to industry averages