Pacific Precision Financial Situation Essay Example | Topics and Well Written Essays - 750 words

pacific Precision Financial incident - Essay Examplepeaceable Precisions increasing NWC can be examined by looking at the components of this monetary measure. Appendix 1 shows how this is computed for the years 2002-2004. What becomes app arent is the change magnitude in days sales outstanding and days sales of inventory. The increase in days sales outstanding indicates the inefficiency of the company in collecting its accounts receivable. Having its sales tied up in accounts receivable for a longer period means that it doesnt have adequate cash to cover its warm obligations. Meanwhile, the increase in days sales in inventory shows that Pacific Precision is not very economic in moving its inventory into sales. This has negative implications-the company incurs holding cost of inventory and its incumbent plus becomes bloated with less liquid resources. These two ratios simply imply that the companys inefficiency makes it less liquid and hindering it from paying its current cred itors, and thus, a higher NWC.2. 2. What is your assessment of Pacific Precisions profitability Keeping in mind that there are many ways to measure profitability (net income, ROS, ROE, ROA, EVA, etc.), what observations would you make about adequacy One of the ultimate measures of Pacific Precisions profitability is its computed return on equity (ROE). It should be far-famed that the main goal of a contrast organization is to maximize shareholder value which is, in turn, measured through the ROE. In order to do an adequate assessment, the companys ROE must be benchmarked with the other players in the industry. Appendices 2 and 3 show the computed ROEs of Pacific Precision and its competitors from 2002-2004. It should be noted that Pacific Precisions ROE is in an uptrend during the period under consideration. During 2002, the company records a 12% ROE which mounts to 13.34% and 18.18% in 2003 and 2004, respectively. This becomes a good indication of the companys performance as it reflects its ability to parent its profitability. However, in the benchmark analysis, it can be seen that the company is performing worse than its two competitors. In fact, play along 2 even manages to record an ROE of 20.7% during 2004. Even though Pacific Precisions profitability is improving, it should be noted that it lags behind other industry players.3. It appears that Pacific is increasingly dependent on short- stipulation debt. What is driving this use, and is it in your estimation a relatively minor or a serious issue for management everyplace the past years, Pacific Precision has been becoming overly dependent on short-term debt. One ground that the case states is the companys previous attraction to the low interest rates on yen short term loans. However, interest rates have increased making these short term debts escalates. The dependence on short term, debt can also be attributed to the companys inefficiency in managing its working capital. As stated