Essay Example on Santana competes in the retail industry Supplying Electrical Products Online

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Santana competes in the retail industry supplying electrical products online and through physical stores Operating Activities Appendix 1 The market is competitive as all competitors reduced their prices at the start of 2016 to gain customers Since the market hasn't grown considerably the competitors have had to compete on price Santana has profitable operating activities because of its 35 increase in operating profit since 2015 whereas their competitors have all experienced a decrease therefore Santana is operating much more efficiently than its competitors The increase in profit would be due to the closure of the central warehouse reducing selling and distribution costs significantly by 283k increasing profit Even though Santana s operating profit margin is increasing it is still very low at 17 5 in 2016 However this can be expected for a retailer as the cost of sales is high Santana has a high market share with approximately 40 in both years and is looking to increase further by creating their own unique branded products which justifies the 52 increase in inventory from 354k to 538k With the brand and technological expertise from G plc Santana can charge premium prices resulting in an increase in revenue and market share Financial Performance Appendix 




2 Financial performance is a measure of how effectively a business is using its assets and capital to generate profit Santana plc has improved their return on assets by approximately 6 suggesting they have become more effective in using their assets to generate revenue since 2015 Looking at Santana s return on capital employed there is an increase of approximately 6 showing Santana is becoming more efficient in using their capital to generate revenue Santana s competitors all had a slight decrease in their ROCE showing that over time they are becoming less efficient in utilising their capital From the competitors C1 has the highest ROCE at 11 8 in 2016 This is considerably lower than Santana s ROCE at 20 3 showing that compared to the whole market Santana is using their capital much more effectively Financial Position Appendix 3 The financial position can be explored through Santana s revenue In 2016 Santana had the highest revenue from their competitors at 6 870k The next largest revenue was met by C1 in 2016 at 3 842k which is almost half of Santana s suggesting Santana is in a much better financial position The huge difference in revenue COGS selling and distributions costs could be due to Santana selling a larger number of units Santana still however has the largest gross profit regardless of higher costs Santana s financial position can also be explored through its balance sheet the assets liabilities and equity 




The total assets have increased by a significant amount which is due to the increase in inventory There is also a reduction in non current assets PPE in 2016 which is due to the closing of the central warehouse The equity has also increased since 2015 which is due to the increase in retained earnings Finally liabilities have decreased significantly due to the debenture loan which added an extra cost that didn t occur in 2016 These all imply that Santana is in a better financial position in 2016 compared to 2015 Financing Appendix 4 Santana has insufficient cash at the bank with only 18k in 2016 and 22k in 2015 If they solely depended on this to cover expenses and cover debts it would become a problem very quickly as they have current liabilities of 568k which must be paid soon It is wise to have some cash on hand in case of any unexpected costs that may arise during the launch of new products The current ratio for Santana is currently 1 14 in 2016 which shows Santana can pay off their current liabilities with their current assets It has however decreased since 2015 A higher current ratio is preferable as Santana would still have assets after to continue operating The only current liability stated on the balance sheet is trade payable therefore the increase in trade payables alone resulted in the lower ratio This could be the result of the increase in production with suppliers for the launch in 2017 which Santana has yet to pay 




The acid test ratio however is more appropriate here as it disregards the inventory as an asset as it is essential for the running of the business The acid test ratio of 0 19 suggests that Santana would not be able to pay off its current liabilities without selling off some of its inventory to generate the capital implying that much of their capital is tied up in inventory In 2016 Santana had a gearing ratio of 0 which means Santana is not financed by long term loans and liabilities This suggests that Santana is financed entirely through equity Generally a low ratio means financial stability However it is sometimes good for a company to have some gearing as it is a good source of capital The ordinary share capital has remained the same for both years 2015 and 2016 suggesting that Santana has not issued any shares To counteract the insufficient amount of cash Santana can issue shares or take out a loan or bank overdraft to raise capital Conclusion Santana is successfully competing with its competitors being the market leader This is implied by their market share high revenue and profits The aim of increasing their market share is achievable with the new plan to introduce differentiated products They are however not prepared for any unexpected costs that may occur during this time as they don t have sufficient amounts of cash in the bank To counteract this they should consider raising capital through issuing shares or taking out a short term loan




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