LANCE

Inventory Turnover

• Overall trend: declining number of times
• Significantly lower than industry average (12)

Could be due to:

• Inefficient stock management 
• Unable to sell stock rapidly 
• Backed up by acid test ratio
• Difference between current + acid test ratio more than half
• Suggests incurring high costs- storage of stock 

Possible solutions for Lance:

• Implementation of lean production methods
• E.g: Just In Time
• JIT- more frequent delivers, in small quantity
• Reduces excessive storage costs
• Reduces opportunity cost of holding stock 

Gearing ratios

• Overall trend: steady increase 
• Less risk for the business
• Because: figure of borrowing relatively low (below 50%)
• Eventhough increasing 
• Low interest rates (cost of borrowing, reward for saving)

Disadvantages of having a low ratio:

• Business less willing to take risks
• Suggests adopting a safe business strategy
• Could further suggests not willing to invest large amounts
• E.g: expansion, increasing capital 

Possible solution for Lance:

• Although gearing ratio is still favourable,
• there is an decline in net profit margins
• Could indicate that Lance may have trouble repaying rising interests
• He needs to consider other sources of finance that may have,
• lower interest rates

Possible solution for Lance:

• Lance should not rely only on gearing 
• Eventhough his ratio is low 
• Because other factors that my affect it
• E.g: Interest rates