Compare Financial Analysis - Finance Essay Example
Compare Financial Analysis
Bally Total Fitness Corporation is the most extensive and largest commercial fitness business in the US with franchises and joint ventures located in the country and outside-Mexico, Korea, China and the Caribbean - Compare Financial Analysis introduction. It operates under Bally Total Fitness ® and Bally Sports Clubs ® brands.
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It a company listed in the OTC with the ticker symbol of BFTH.
To analyse the financial performance of the company, it is important to evaluate key ratios e.g. profitability, liquidity, leverage ratios, activity ratios and earnings ratios. The ratios should then be compared with similar periods in the preceding year.
Operating profit margin = operating income Half to June 07 06
Sales 24,228 42,351
468,875 =5.2% 492,431=8.6%
This ratio indicates that there was a significant drop in profitability as compared to similar period in 2006.
Net profit margin = after tax profit (7141) 31937
Sales 468875= N/A 492,431 =6.5%
Net profit margin ratio for the half-year 2007 June represents a huge drop to losses.
Return total assets = after tax profit + interests (7141) +53,468 31937+49090
Total assets 411,379=11.3% 430902=18.8%
Return on equity = after tax profit (7141) 31,937
Total equity (1397565) =N/A (1410293) = N/A
The shareholders equity is negative and with the losses that the company made, the shareholders have to contend with extra loses which will further devalue their investments
Earnings per share= after tax profits discount $(0.17) $0.82
Outstanding common stock basic- $(0.17) $0.82
Shows the current solvency position of the company
Current ratio= current assets 109,010 46,964
Current liabilities 1,231,991=0.09 611,627=0.08
Quick ratio = current assets-inventory 109010-0 46,964
Current liabilities 1231991= 0.09 611,627 = 0.08
Working capital=current assets –current liabilities (109,010-1,231,991) (46,964-611,627)
=1,122,981 = -564,663
Debt to assets ratio = total debt 800782+10498 180354+542,786
Total assets 411379 = 2 430902 = 1.7
This ratio indicates the level of debt used in the operations of the company. This ratio should be low because high level of debt can lead to high risk of bankruptcy
Debt to equity ratio = total debt 811,280 723,140
Total equity (1,597,565) =N/A (1,410,293) = N/A
Analysis of ratios
All the profitability ratios of this company have dropped as compared to similar period in 2006. Therefore the company is a bad financial position now as compared to similar period in 2006. The ideal situation is that the profitability ratios should be on an increasing trend.
The same case applies to liquidity ratios. The company’s liquidity ratios are way below the minimum levels. At these levels, the company will have serious difficulties in meeting the company’s obligations; whether current or long-term. The working capital is even in negative territories.
The leverage ratios indicate that the company using a high level of debt relative to its assets. This creates a high risk of bankruptcy. The debt to assets ratio increased from 1.7 to 2 hence the continued use of high debt levels could threaten the long term survival of the company.
As seen earlier, the financial ratios indicated that the company’s financial position is not stable and the long term survival is in serious doubt. This is the reason why most of the company’s subsidiaries, franchises have voluntarily filed for bankruptcy orders under Chapter 11. This bankruptcy order has approved by the court.
The management admits that the company is not financially stable and in their discussion, they indicate the continued loss making by the company could potentially affect future revenues generated through membership fees, lead to lack of supplies and increase in labour turnover. All these could prolong the period in which the company could return to profitability
Interest rate and market risk
The company’s outstanding debt is substantial and therefore this exposes the company to risks associated with debt. The interest rate on the debt is variable thereby exposing the company to fluctuations in interest rates.
Since the company also has operations in different countries, it is exposed to market risks.
Foreign exchange risk
The other potential risk rising from foreign operations is of foreign exchange risk. Foreign operations are denominated in local currencies and therefore requiring translation on consolidation, which could result into significant foreign exchange losses and thereby affecting the shareholders equity.
The current stock price at the close of trade on Friday 29th 2008 was $0.31 which was a 6.9% increase from Thursday’s closing price of $0.29.
The 52 week highest price the stock achieved is $2.06 with lows of $0.05 on an average trading volume of 502,000 shares.
The company’s stock has steadily dropped from a high of $2.04 in February 2007 to low of $ 0.31 currently.
Yahoo Finance (2008). Bally Total Fitness Holding Corp. (BFTH.PK). Retrieved on 1/3/2008 from http://finance.yahoo.com/q/hp?s=BFTH.PK&a=00&b=4&c=2007&d=02&e=1&f=2008&g=m