Genesis Energy is a midstream services provider that is headquartered in Houston, Texas. The company’s primary activity is the provision of energy infrastructure and services. A n analysis of th e financial position of Genesis Energy reveals that the firm is doing well financially and is in a position to service its loan and debts. The company’s cash flow statements also indicate that it is operating on strong sales although it has w eak cost control procedures. However, the sale s output figures in December 2014 indicate that the firm experienced reduced sales revenue . This c an be attributed to typical low seasons at that time. However, Genesis Energy is growing in all its operations, as illustrated by the constant increas e volume of sale in its statement of financial position. The monthly sales also indicate a growing amount of revenue for Genesis Energy.
One notable challenge that Genesis Energy is facing in its sale s return is the number of days it takes to collect revenue from its sales. This is because the company receive s only 10 percent of its revenue from sales in the first month, and the rest is raised within a span of ten months, each month yielding only 10 percent of the remaining sales. This is an indicator that the company has an efficient and effective approach to managing its accounts receivables and thus can easily finance its debts and capital requirements. Genesis Energy is also operating on higher sales days with sufficient average collection period that allows it to track its outstanding payment effectively . This period is adequate for the company to make decisions on how long it has to wait before receiv ing cash from the sales made. T he computed ratios that indicate the financial position of Genesis Energy are presented in this analysis.
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Financial analysis of Genesis Energy
Using the company’s financial statements for years 2013 and 2014, the following calculations were completed to ensure a comprehensive financial position analysis.
Liquidity Ratios
Net Income * Sales
x
Sales Assets
X
Assets Equity
= ($2100, 000/$400,000) ($400,000/$780,000) ($780,000/$685,000)
=0.525 X 0.5128051 X 1.13868613
0.30656013
Current ratio
Current Assets Current Liabilities
=$300,000/$125,000
=2.4
Quick ratio
Cash + Marketable Securities + Accounts Receivable Current Liabilities
= ($124,000+$85,000+$115,000)/ $108,000
= 3
Inventory Turnover
Average Cost of inventory/cost of goods sold x 365
= ($375,000/$635,000) X 365
= 215 days
Average collection period = accounts receivable ration/365
0.3 X 365= 109.5 DAYS
Debt ration
Total Debt Total Equity
=3$10,000/$780,000
$0.3974359
Economic value added
Net Operating Profit after Taxes (NOPAT) - (Capital * Cost of Capital)
=$154,000 – $89,000 = $65,000
Dividend yield
Dividend Yield = Dividend per Share / Price per Share
$38/3 = $12.667
Operating Profit, Net income for the current fiscal year $22,000,000,000
The balance in stockholders’ equity 8, 985,785
The total value of assets $15,000,000,000
The Revenue is 9,000,000,000
Assets Turnover
Net Revenues/Average total assets
9,000,000,000/15,000,000,000
=0.6
Receivables Turnover
Net Revenues/Average receivables
9,000,000,000/1,115,000,000
= 7.8
Return on Assets
Net Income/ Total Assets
2,100,000,000 / 15,000,000,000
= 0.14
Profit Margin
Gross Income / Net revenue
2,100,000,000/9,000,000,000
= 0.2333
Spreading the Financial Statements
The current ratio gives an indication of how liquid Genesis Energy is a comparison of its current liabilities and the current assets. The above ratio is calculated as follows;
Current Assets Current Liabilities
2014 = 1350 = 1.5
900
2013= 1343 = 1.658
810
Inventory Turnover
Inventory turnover is used to illustrate how long Genesis Energy withholds its inventory before turning them into revenue and subsequently profit for the company thus showing the liquidity of a company's inventory.
Formula
Cost of Goods Sold OR sales
Average Inventory Inventory
3-31 Inventory Turnover In Days
Formula
(Average Inventory) * (Cost of Goods Sold) 365
Thus, 2014= ( 430+390)/2 = 410 = 0.41667 times or 0.41667 *365 = =152 Days
984 984
2013= ( 390+326)/2 = 358 =0.4 times or 0.4 * 365 = 146 Days
895 895
3-32 DuPont Analysis
The DuPont Analysis is a profitability ratio that measures the net income of Genesis Energy in dollars generated from each unit of sales.
Formula
Net Income * Net Sales
Thus, for 2014 = 364 = 364 = 0.1207
(4000-984) 3016
for 2013, 213 = 213 = 0.0787
3600-895 2705
Internal and Sustainable Growth Rates of Genesis Energy
The Internal and Sustainable Growth Rates ratio is a profitability ratio that measures the ability of Genesis Energy to utilize all its assets to earn revenue. It usually measures how efficient a company can use its assets to make a profit.
Formula
Net Income * (Beginning + Ending Total Assets) / 2
Thus, for 2014, = 364 = 364 = 0.159895
(2243+2310)/2 2276.5
for 2013, = = 213 = 213 = 0.098089
(2100+ 2243)2 2171.5
Return on Common Stockholders’ Equity of Genesis Energy
Return on common stockholder’s equity measures the income a company earns from the stockholder's investment in Genesis Energy . Formula
Net Income * Equity
Thus, for 2014 = 364 = 0.356863
1020
For 2013 = 213 =0.204808
1040
Time Interest Earned
Time interest earned ratio indicates the capability of Genesis Energy to meet its obligations for paying attention promptly. It is a measure of how Genesis Energy complies with the requirements of interest payments on its debt capital and any borrowed capital into Genesis Energy.
Vertical and Horizontal Analysis
The total debt to asset ratio gives reliable information on the ability of Genesis Energy to cope with the reduction in assets that may be attributed to the loss made.
Debt to Assets Ratio
Total Liabilities Total Assets
Thus, for 2014 = 900+390 = 1290 = 0.55844
2310 2310
for 2013, = 810+393 = 1203 = 0.536335
2243 2243
Discussion of the Financial Position Analysis of Genesis Energy
In the financial statement of Genesis Energy, there are shortcomings on the same which might be a concern when following the GAAP principles. These include a comparison of financial statements between different periods as a result of capturing an accounting figure differently in two periods . The financial analysis only takes into account the firm’s financial statements but falls short of capturing information like future performance indicators, warranty claims and order backlogs.
T he financial statement analysis of Genesis Energy indicates a positive performance in the industry. Regarding its overall performance in the industry, Genesis Energy is performing relatively better than its counterparts . The noted difference in the financial analysis statements of Genesis Energy for 2013 and 2014 could be due to the different market niche and operational strateg ies that the company specializes in . In this case, Genesis Energy has determined to exploit both the middle and the upper-class market in a bid to maintain its strategic and financial position in the market.
Financial position analysis is a valuable tool for organizational planning that may result in overwhelming success if properly implemented. Th us, th e financial analysis of Genesis Energy is used for efficient delivery of services that are aimed at keeping the organization more profitable in its daily operations. As such, the cash position of Genesis Energy can be used for controlling the expenditure and incomes . Likewise , financial analysis helps in setting organizational targets thus establishing the priorities that the organization must follow. Other significan t uses of the financial position analysis of Genesis Energy is the coordination and direction of the daily management of the organization to turn the existing plans into reality . This is achieved by delegating the responsibility to the holder of the budget, allocating resource to various departments and creating accountability.
Genesis Energy focuses on establishing a long-term plan that is aimed at achieving its mission . The financial position of Genesis Energy also looks out to an extended duration of operation that may span from three to ten years or eve n l onger. Strategic planning establishes the current position of the business so that the management can quickly identify the next step , the mean of attaining their goals and how to tell whether the objective s ha ve been achieved .
The c ash financial analysis of Genesis Energy forecas ts all expenses and income so that the business can quickly identify its future financial needs for effective planning . This is based on its anticipated expenses, profit, and cash flow . As a result, the c ash position analysis is considered the most important planning tool in the company’s business operations. The c ash position report focuses on the impacts of the cash position analysis process to the cash balances. Likewise, the report caters for one year, or less and looks at the cost of business activities that are essential to the production of goods and services an d that rely on the financial statements of the business . Through the financial position analysis, the company ’s mission is clearly defined and thus can easily be measured against the financial analysis by anchoring it on the budget. The report also gives a clearly defined action plan that can be measured against the actual results by the management.
Through the analysis, the actual performance can be monitored in comparison with the cash position analysis because a target is already set against which the management works to achieve. However, the p ast performance does not give room for a corrective action to be taken should there be a difference in the cash position analysis process. In this regard, Genesis Energy provides no room for approval in case there is any variance from the targets and relies on cash position analysis to set goals against performance thus providing an avenue of support and measurement of return. This means that cash position analysis performance will give an opportunity for unaccounted variances to be investigated within the set timeframes.
Genesis Energy uses cash position analysis as a significance part of its evaluation process because it gives essential element avenues through which an entity can plan its activities. The f inancial analysis facilitates estimat ion of the progress of an organization in a systematic manner. Likewise, it provides the baseline for setting goals that the organization aims at achiev ing. Also, the financial analysis set s the threshold that is used to ascertain the production level, the cash flow level and other important aspects of the cash position analysis process. As such , the financial analysis will remain the starting point of any cash position analysis process. This has made sale forecasting necessary to help an organization cope with the rapid changes in the industry where it operates.
Spreadsheets are a critical part of the cash position analysis in any financial analysis process. The central importance of cash position analysis is to facilitate the evaluation of what is analysis so that the correct budgetary estimates are obtained and thus is referred to as a scenario analysis. The aid of cash position analysis is to conduct multiple versions of important assumptions with the help of a model and then present the effect to the primary output of the cash position analysis process. Additionally, it enables Genesis Energy to specify model inputs within a cell during cash position analysis. The data tables in the spreadsheet also give a visual impression of the impact on the main outputs cells during cash position analysis using a model to run various values into a single output. The spreadsheet also has lockups that enable natural stepping up of the scenario manually, thus enabling verification of the model scenario to be applied.
The spreadsheet also provides a template that gives more convenience to the cash position analysis since it already has more categories of cash outflows and inflows. This means that all that is need ed is to key in the cash position analysis figures without extra work of generating the classes required. The automated characteristic of the spreadsheet makes it possible for the accurate figures to be put into the cash position analysis so that totals of the input figures are generated . Cash position analysis requires a lot of modification so that accurate results are obtained . As such, the spreadsheet provides the correct template for modifying by adding or deleting any category that is necessary for the cash position analysis to deliver accurate results.
Since the cash position analysis is a continuous process, it will require frequent application of the spreadsheet which is only downloaded once and can be reused several times. It also provide s a ready-made template for cash position analysis of cash flows thus providing more convenience during the cash position analysis process. For an effective cash position analysis, it is important to study the way the cash flow behaves especially when the projected cash flows exceed the budget. Spreadsheets will provide a clear explanation of this behavior in advance. This feature is provided for by the spreadsheet thus making it a significant tool for cash position analysis.
Based on the information of Genesis Energy, it is clearly evident that the financial position of the company is favorable with respect to the maximization of profits. A sustainable continuous improvement is needed within the organization to keep up this trend. Improvements should be pegged on values and attitude and then linked with rewards and recognition. It should be effected through empowerment of the employees as opposed to directions by developing a shared vision. The management should identify a training need organize for the same and set parameters for measuring its effectiveness. A number of tools can be employed to for the purpose mentioned above . These include Kaizen which can regularly be implemented throughout the organization for continuous improvement.
Ethical behaviour in a publicly traded company is paramount in recent times. The pressure for ethical decision making is placed on the management by creditors, financial partners, shareholders and other parties interested in the financial performance of the company. These include government regulators among other stakeholders. Unethical behaviour such as insider trading, misreporting of financial position can affect the reputation of the company . Thus, it is critical for the company to follow appropriate corporate practices to avoid the onslaught of economic penalties and legal issues that arise from unethical activities.
