INTRODUCTION
Cambridge Space Systems plc, a small private company headquartered in Cambridge, England, was engaged in the design and manufacture of small rockets and space systems for commercial, military, and civil customers. In September 2005, Cambridge approached Equator Partners, a private equity firm, about a potential buyout. Since Equator funded its acquisitions with large amounts of debt, potential acquisitions needed excellent cash flow generation, and modest levels of long-term debt. Andrew Amphlett, a recently hired MBA from London Business School, had to analyze Cambridge to determine whether Equator Partners should pursue a buyout of the closely held firm. Here is a report on the outcome of the analysis.
TREND ANALYSIS
Turnover have increased in 2008 and this shows an upward trend .however the operating and non-operating expenses in 2008 are on the rise compared to 2007.this has lead to a small increase in retained profits for 2008 compared to retained profit in 2007
Return on sales is a ratio widely used to evaluate a company's operational efficiency as a firm's: This measure is helpful to management, providing insight into how much profit is being produced per dollar of sales. An increasing return on sales indicates the company is growing more efficient, while a decreasing return on sales could signal looming financial troubles In 2008 the company had a return on sales of 4.96 % and in 2007 a return on sales of 7.36% .this indicates a drop on returns. Comparing with companies within the same industry like Lockheed martin which had a return on sales of 7.2 % in 2007 and mooginc, A return on sales of 6.5 % and orbita sciences a return on sales of 5.2 %.the company seems to on the decline. This decline on the return on sales is a clear indication of looming financial problems.
Return on assets for the company in 2008 was 31.3% while in 2007 it was 35.5%.though it has decreased it is above other players in the industry for example in 2007 Lockheed martin, mooginc and orbital sciences all had a return on assets of 10.5%,5% and 7.2 % respectively. Working capital ratio represents current assets that are financed from long term capital resources that do not require repayment in the short-run, implying that the portion that is financed from long term capital resources is still available for repayment of short term debts. in the year 2007 3,609,509 of working capital, representing current assets financed by long term capital resources is available to pay short term debts and in 2008 4,050,730 is available of working capital to pay short term obligations.
In 2008 we have a current ratio of 1.4:1 and in 2007 a current ratio of 1.3:1. The enterprise appears to have a weak liquidity position. There has been, however, a slight increase from year 2007 to year 2008.For every shilling that is owed of current liabilities in 2008, the firm has Sh.1.4 of current assets to pay the debt and for every shilling owed of current liabilities in 2007, the firm had Sh.1.3 of current assets available to meet the liability.
The days receivables is a measure of the average number of days that a company takes to collect revenue after a sale has been made. A low number means that it takes a company fewer days to collect its accounts receivable. A high number shows that a company is selling its product to customers on credit and taking longer to collect money. The company has a day’s receivables of 86.5 days compared to other companies within the industry like martin, mooginc and orbital sciences which have a days receivables of 42.94 days,101.2days and 61.78 days respectively; there is a clear indication that the company policy on debt collection need to improved. This is because the company may not be in a position to recover its debts and they may end up being written off, and hence the company profits will continue declining and may eventually lead to its collapse.
Asset turnover measures a firm's efficiency at using its
