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Gemini Electronics Case Analysis

By:   •  July 2, 2014  •  Essay  •  695 Words (3 Pages)  •  4,714 Views

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Gemini Electronics is only a five year old start-up television producing firm that is seeking options to increase business and profits in an increasingly competitive North American market. Provided with the firm's financials including the last 5 years worth of income statements and balance sheets, as well as the industry averages for the key ratios and vertical analysis for both the income statement and balance sheet, I will assist in giving the outlook for the firm and provide the direction in which the firm should be proceeding and where they are currently headed.

Overall Gemini has seen an increase in sales over the last five years. Specifically, they have had an 84% increase in sales and an 82.5% in gross profit. These figures are very impressive but when analyzing deeper into the firm's financials the future of Gemini could be quite different without changes. The net operating working capital (NOWC) has increased as well from a modest 696,760,110 to 3,663,33,120 which helped precipitate an 80% increase in the total net operating capital (TNOC). Over the last five years the firm has used most of its capital to invest in its fixed assets which also rose 86%. The firm would need to continue these investments as it diversifies its products as it attempts to compete with larger firms. Gemini had a consistent negative free cash flow (CFC) value due its increased debt balance which is typical of a start-up or a firm that accumulates debt each year.

Analyzing how the firm is performing compared to industry averages is critical as it begins to expand and compete with the larger firms such as Samsung, Toshiba, and Motorola. Gemini's current ratio is slightly lower than the industry average and has continued to increase slightly over the last five years. The firm could continue to borrow at its current rate due to the current ratio due to its shareholders perceiving that the company is investing company capital in productive assets. On the other hand, some suppliers and investors could be under the impression that the ratio is low and Gemini may be unable to payback its debts in a timely manner.

The firm's quick ratio hovers around 1 through out the five years, but the Cash ratio ranges from 0.5 to 0.8. The Cash ratio is on par with the industry average and illustrates that Gemini is capable of paying off current liabilities at the same rate or quicker than its competitors. This bodes well for future investments and

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