Understanding project contractors and contracting businesses Essay

Understanding project contractors and contracting businesses - Essay Example Understanding project contractors and contracting businesses Analysis of such parameters will help us with an understanding about how the companies have performed over the seven years and whether they were able to add value to the company. One of the companies chosen above has a high total asset usage and the other one has a low total asset usage. The underlying rationale behind choosing this ratio as the primary differentiating parameter between these two companies is because this ratio is very useful in determining the financial performance of the company. It gives us an indication of the pricing strategy that the companies have adopted. Moreover, the firms have been chosen as a case of high and low values of a ratio that appears in the Du Pont system, which will make it easy for us to explore relationships and trade-offs between that and other ratios. The following sections will involve the analysis of key financial ratios that the firms have been able to achieve over the seven years. 2. Midas Retail Limited Midas construction is the larges t company that belongs to the Midas group of companies. The primary line of work that the company is engaged in is to serve the design and construction needs of all its customers from a network of local offices. The company works in close partnership with its local partners who specialise in supply chain, thereby utilizing their local expertise and knowledge. Each of the regional business under the Midas group offers highly personalised services which are designed to suit the needs and requirements of every individual customer and project (Midas, 2013) 3. Rock Fall Company Limited This company specilises in drilling, explosives engineering and blasting, particularly in the marine environment. The company has been able to complete more than 200 contracts in about 35 countries. The line of work that the company is engaged in ranges from the removal of small boulder outcrops to massive port development schemes. The activities are generally related to harbor deepening, clearance of navi gation channels and quay well construction. Another activity that can be include in the company's list of underwater expertise is foreshore trenching (Rock Fall, 2013). 4. Ratio Analysis Ratio analysis is an attempt to reduce accounting information in to more usable understandable figures and look at relationships between the figures. It can be used to ‘help interpret trends in performance year on year and by benchmarking to industry averages or to the performance of individual competitors or against a pre-determined target’ (Collier, 2009, p.104). Firstly, we can compare ratios for two or more accounting periods and look at the change. However, external factors may have influenced activity levels. For example, public awareness of environmental issues may have necessitated a change in manufacturing process leading to increased costs. Secondly, we can compare this to another company in the same industry. However, in some case, businesses may not be truly comparable with regard to size and type. For example, bases on which accounting information is prepared, may be different (inventory valuations and depreciation). Thirdly, we can compare this to an industry average, these can be compiled using data bases such as â€Å"Data Stream†. However, these have to be comparable as reflect as closely as possible the various characteristics of the company (McLane & Atrill, 2009, p.224-225). 4.1 Efficiency Ratios 4.1.1 Asset turnover This ratio measures the amount of sales that a company generates for every dollar’