Posted on March 30, 2016
The free cash flow for KRO Company is found out to be $1.36 billion. The free cash flow of the company is relatively a larger amount as compared to other companies in the industry. This indicates that the company has much cash after accounting for capital expenditure. This implies that the KRO Company have now enough cash to reduce its debt as the company has a high debt ratio of 69.2%. It can also buy back its share and increase EPS, increasing the value for its shareholder and strengthening the financial appearance of the company. Also, the portion of this positive cash flow could be invested in the strategies that improve the financial ratio of the company. The high cash flow should be invested to increase the profit margin of the company. The cash flow should be invested in systems and structures that minimize the operating expense and administration cost of the company, which would be beneficial in the long run.
KRO Company has the very high current ratio, 7.8 indicating high liquidity of the company. This indicates that KRO Company has very high current assets (cash, cash equivalents, receivables, and inventory) and has less current liabilities. This is not so good. The company has more working capital that is not utilized properly. Also, the company has low inventory turnover than that of DPZ. This implies the high current ratio is due to delay in inventory conversion into sales. The quick ratio of the company is 2.82 which is still higher that of DPZ company. The company also has DSO of 42.7, which means it needs to decrease its receivables to a shorter period. The company also has the fixed asset turnover value almost 3 times lesser than that of DPZ. However, in terms of total asset turnover, KRO is doing well than its competitor. This all implies that the company needs to increase the sales of the company. For that, the company must use strategies of increasing inventory turnover and increase the rate of sales. The company must invest its huge working capital in marketing strategies to improve its sales. Also, it needs to sell some of its fixed assets and use it in investing for sales strategy.
On contrast, KRO has a higher return on equity, higher return on asset and higher times interest earned than its competitor does. This implies that although the company is having comparatively fewer revenue sales than its competitor is, the net profit of the company is, however, significant to satisfy its stakeholders. The net sales of the company are relatively lower than that of its competitor however the net income of the company is company is good enough for given low-profit margin of only 1.57%. The results, therefore, gives confusing results. For the lower sales than the competitor at low margin giving higher net profit is contradicting result. This interpretation is however in the lack of information on profit margin of the competitor and the market. If the profit margin for DPZ and other competitor are lower, only then the result deduced can be justified. In such case, the company should set strategy for improvising sales maximization to increase the market share.
Hence, these were the comparisons and decoctions from the information available of the class and present condition of KRO Company.
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