Gemini Electronics

GEMINI ELECTRONICS
Gemini Electronics was a U.S based manufacture of TVs, LCD,

DVD players, Home theatre sound systems and cable sets. In
January 2010 they formed ad hoc Committee of senior manager at Gemini to study different
growth options. The options were as follow:
Continue to focus on TVs But to expand Geographically

Increase Product Offerings
For accessing the company`s financial condition before taking any decision the management hire
a consultant to evaluate Gemini financial condition. Consultant makes financial ratio analysis,
horizontal and vertical analysis of financial statements of Gemini electronics from year 20052009.
Ratio analysis
NOTE: All the financial figures we used for calculations are taken from the annual
financial report of Gemini electronics for year 2008 and 2009
1. CURRENT RATIO
Current Ratio = current assets / current liabilities.
2008
Current Ratio=
2009
5439170231
2161277587
Current Ratio= 2.52 times
Current Ratio=
6013296190
2349963070
Current Ratio= 2.56 times
Interpretation
The organizations having current ratio more than 1 shows that organization has more assets then
its liabilities. In this case it is clear that it has $2.52 in assets to cover $1 liabilities in 2008 and
$2.56 in assets to cover $1 liabilities in 2009. But they have fewer ratios than industry average
which is not good.
2. CASH RATIO
Current Ratio =
Current AssetsInventories
A
Rec
C
/ current liabilities.
2008
2009
CASH RATIO =
543917023127441198951328523975
2161277587
CASH RATIO =
601329619030962614501503560340
2349963070
CASH RATIO = 0.63 times
CASH RATIO = 0.60 times
Interpretation
The organizations having cash ratio less than 1 shows that organization has less assets then its
liabilities. In this case it is clear that it has $0.63 in 2008 and $0.60 in 2009 to cover $1 liabilities
which Is not good for Gemini electronics but they are far better than industry average which is
just 0.05.
3. ASSET TURNOVER RATIO

Asset Turn-over=
Net sale
Total assets
2008
Asset Turn-over=
2009
12175476500
8321331107
Asset Turn-over= 1.46 times
Asset Turn-over=
13664714160
9957696704
Asset Turn-over= 1.37 times
Interpretation
The result of the ratio is showing that Gemini electronics had the asset turnover of 1.46 and 1.37
in 2009 and 2009 respectively, which is very good even though it is decreased little bit 2011 but
still it is very good. It means that the utilization of assets is in good position and it is also better
than the industry. It is indicting that how much the company has the efficiency in maintaining the
operations of the company.
4. PARTS INVENTORY TURNOVER RATIO

COGS
Raw. Inventory Turn-over= Raw Inventory

2008
2009
7886796000
Inventory Turn-over= 1062819180

Inventory Turn-over=7.42
8974149576

Interpretation
The result of the ratio is showing that Gemini electronics had the raw material Inventory
turnover of 7.42 and 7.47 in 2008 and 2009 respectively, which is very good.
5. PARTS INVENTORY PERIOD

Inventory Period=
Inventory
365

2008
2009
365
Inventory Period= 7.42

Inventory Period= 49.19 days
365
Inventory Period= 7 . 47
Interpretation
The result of the ratio is showing that Gemini electronics had the Raw Inventory period of 49
and 48 days in 2008 and 2009 respectively, which is not very good because it is higher than
industry average of 32.
6. WIP INVENTORY TURNOVER RATIO

COGS
WIP Inventory Turn-over= WIP Inventory

2008
2009
7886796000
75640210
Inventory Turn-over=
Inventory Turn-over=104
Inventory Turn-over=
8974149576
89575400
Interpretation
The result of the ratio is showing that Gemini electronics had the WIP Inventory turnover of 104
and 100 in 2008 and 2009 respectively.
7. WIP INVENTORY PERIOD

WIP Inventory Period=
Inventory
365

2008
Inventory Period=
2009
365
104
Inventory Period=
365
100
Interpretation
The result of the ratio is showing that Gemini electronics had the WIP Inventory period of 3.51
days and 3.65 days in 2008 and 2009 respectively, which is very good because it is far better than
industry average of 7.89 days.
8. FG INVENTORY TURNOVER RATIO

FG Inventory Turn-over=
COGS
FG Inventory
2008
2009
7886796000

8974149576

Interpretation
The result of the ratio is showing that Gemini electronics had the FG Inventory turnover of 4.91
and 4.97 in 2008 and 2009 respectively.
9. FG INVENTORY PERIOD
Inventory Period=
2008
Inventory
365

2009
365

Inventory Period= 74 days
365

Interpretation
The result of the ratio is showing that Gemini electronics had the FG Inventory period of 74 and
73.44 days in 2008 and 2009 respectively, which is also very good because average industry
turnover is 188 days.
10. AVG COLLECTION PERIOD

Avg Collection Period =
A /cReceivables
Avg daily sale
2008

1328523975
33357470
Avg Collection Period = 39.8 days
2009
1503560340
37437573
Avg Collection Period = 40.16 days
Interpretation
The result of the ratio is showing that Gemini electronics had the Avg Collection Period of 39.8
and 40.16 days in 2008 and 2009 respectively, which means that they receive cash from their
creditor on average in 39 days in 2008 and in 40 days in 2009. In 2009 DSO increase which is
not good for the organization and also they have higher DSO as compared to industry.
11. DEBT/EQUITY RATIO
Debt/equity ratio =
Total debt
total equity
2008
2009
3911083724
Debt/equity ratio = 2900817082
4713195721
Debt/equity ratio = 3680070533 100
100
Debt/equity ratio=1.28
Debt/equity ratio=1.35
Interpretation
The result of the ratio is showing that Gemini electronics had the Debt/equity ratio of 1.35% and
1.28% in 2008 and 2009 respectively, which means that they have debt of 135% of total equity in
2008 and 128% of equity in 2009 which is not good for stock holders because company`s default
risk is very high and it is also greater than industry average of 0.5.
12. GROSS PROFIT % AGE

Gross profit % age =
Gross Prof it
100
Net sale
2008
2009
4288680500
Gross profit % age = 12175476500
4690564584
Gross profit % age = 13664714160 100
100
Gross profit % age = 34.32%
Gross profit % age = 35.22%
Interpretation
The result of the ratio is showing that Gemini electronics had the gross profit ratio of 35.22% and
34.32% in 2008 and 2009 respectively, which means that they earn $35.22 in gross profit by
investing $100 in 2008 and $34.32 in 2009 respectively which is good but they are behind the
industry average.
13. NET PROFIT % AGE

Net profit % age =
Net Profit afetr tax

100
Net sale
2008
Net profit % age =
2009
853087156
12175476500
100
Net profit % age = 7
Net profit % age =
779253450
13664714160 100
Net profit % age = 5.7
Interpretation
The result of the ratio is showing that Gemini electronics had the net profit ratios of 7% and
5.7% in 2008 and 2009 respectively, which means that they earn $7 in net profit by investing
$100 in 2008 and $5.7 in 2009 respectively which is very good because it is much higher than
industry average.
14. OPERATING PROFIT % AGE

Operating profit % age =
EBIT
Net sale 100
2008
2009
1590128722
Net profit % age = 12175476500

100
1528775163
Net profit % age = 13664714160 100

Interpretation
The result of the ratio is showing that Gemini electronics had the operating profit ratios of 13.1%
and 11.2% in 2008 and 2009 respectively, which means that they earn $13 in net profit by
investing $100 in 2008 and $11.2 in 2009 respectively which is very good because it is above
than industry average of 7.41%.
15. RETURN ON ASSET

Return on asset =
Net Profit
Total Assets 100
2008
Return on asset =
2009
853087156
8321331107 100
Return on asset = 10.25
Return on asset =
779253450
9957696704 100
Return on asset = 7.82
Interpretation
The percentages of two consecutive years are showing that the company is profitable as relative
to its total assets. And its assets are generating good revenue. Company has a good ROA result in
2008 to 10.25% and in 2009 they have ROA of 7.82%. I will say that the company is in good
position in generating the revenue by its assets for last two consecutive years but their ROA is
decreased in the last year because their total assets increased 19% in 2009 and their income
decreased 8.46% in 2009 which is not good sign for Gemini electronics but they are far better
than industry average of 3.32%.
16. RETURN ON EQUITY

Net Profit
Return on Equity = Total Equity 100

2008
2009
853087156
779253450
Return on Equity = 2900817082 100
Return on Equity = 3680070533 100
Return on Equity = 29.41
Return on Equity = 21.17
Interpretation
The percentages of two consecutive years are showing that the company is profitable as relative
to its total equity. And its equity is generating good revenue. Company has a good ROE result in
2008 of 29.41% and in 2009 they have ROE of 21.17%. I will say that the company is in good
position in generating the revenue by its Equity for last two consecutive years and they are much
better than industry average of 6.6%.
17. FIXED ASSET TURNOVER RATIO.

Fixed Asset Turn-over=
2008
Total
Net sale
assets
2009
Fixed. Asset Turn-over=
Fixed. Asset Turn-over=
Fixed. Asset Turn-over= 4.22
Fixed. Asset Turn-over= 3.46
12175476500
2882160876
13664714160
3944400514
Interpretation
The result of the ratio is showing that Gemini electronics had the fixed asset turnover of 4.22 and
3.46 in 2008 and 2009 respectively, which is very good even though it is decreased little bit in
2008 but still it is very good. It means that the utilization of fixed assets is in good position. It is
indicting that how much the company has the efficiency in maintaining the operations of the
company and also they are better than industry average of 2.42.
18. OPERATING CYCLE

Operating Cycle = DSO+ Inv TO in days- A/C payable TO
2010
2011
Operating Cycle = 40+126-70
Operating Cycle = 40.16+126-63
Operating Cycle = 96 days
Operating Cycle = 103 days
Interpretation
The result of the ratio is showing that Gemini electronics had the Operating cycle of 96 days and
103 days in 2008 and 2009 respectively, which means from startup of operations to the profit;
they took 96 days in 2008 and 103 days in 2009. In 2009 the time increased because payable
turnover decreases in 2009 but still they are very good as compared to industry average of 192
days.
19. TIMES INTEREST EARNED

Times interest earned =
EBIT
Expense 100
2008
Times Int. Earned=
2009
1590128722
277686944
Times Int. Earned=
1528775163
329923700 100
100
Times interest earned = 4.63
Times interest earned = 5.73
20. AVG PAYABLE PERIOD

Avg Payable Period =365
COGS
Acc Payable
2008
2009
Avg Payable Period =365

7886796000
1509430300
Avg Payable Period = 70 days
Avg Payable Period = 365

8974149576
1564430450
Avg Payable Period = 63 days
Interpretation
The result of the ratio is showing that Gemini electronics had the Avg Payable Period of 70 and
63 days in 2008 and 2009 respectively, which means that they pay cash to their debtors on
average in 70 days in 2008 and in 63 days in 2009. In 2009 Payable Period decreases which is
not good for the organization.
FINANCIAL RATIO ANALYSIS
The financial ratios were divided into four parts:1. Liquidity
particularly interesting to short-term creditors
it is focus on current assets and current liability
General rule for the current ratio should be at least 2:1
For the Gemini Electronic the current ratio is consistent and it is increase in year 2006.
But we note that Gemini Electronics is slightly less liquid than the average firm in the
industry because the current ratio is lower than the industry average.
2. Assets management
Both fixed assets turnover and total asset turnover are higher than industry average,
indicating that Gemini Electronics is using its asset efficiently than the industry
average in generating sales.

In term of collecting receivables (your sales money), Gemini Electronics was
becoming slow during year 2009. One of the causes is many retailers (clients)
demanded more generous credit terms than net 30 days, which standard in the industry.
Besides that, interest was also not charged on overdue account.
3. Long-term debt paying ability
Gemini Electronics debt ratio and debt equity ratio indicate that Gemini Electronics is
more leveraged than the average firm in industry. Leverage means the amount of debt
used to finance a firm's assets. A firm with significantly more debt than equity is
considered to be highly leveraged.

The higher leverage explains Gemini Electronics poor financial performance relative to
the electronics industry because the leverage commits Gemini Electronics to interest
payments that must be paid regardless of economic and market conditions.

4. Profitability
The ratios indicated that Gemini Electronic has a higher cost of sales than the average
firm in the electronics industry, resulting in a lower gross profit margin, and But due to
lower R&D cost, resulting in higher net profit margin performance relative to the
electronics industry.
Recommendations
Gemini Electronics operating profit margin and net profit margin is better than industry but have
lower Gross Profit margin which means that they are incurring more cost on raw material than
industry. They need to invest in R&D and comes up with innovations like Samsung. They also
need to decrease debts from their capital structure to decrease the default risk.

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GEMINI ELECTRONICS

Gemini Electronics was a U.S based manufacture of TVs, LCD,

Continue to focus on TVs But to expand Geographically

Current Ratio= 2.52 times

Current Ratio= 2.56 times

CASH RATIO = 0.63 times

CASH RATIO = 0.60 times

3. ASSET TURNOVER RATIO

Asset Turn-over= 1.46 times

Asset Turn-over= 1.37 times

4. PARTS INVENTORY TURNOVER RATIO

Raw. Inventory Turn-over= Raw Inventory

Inventory Turn-over= 1062819180

Inventory Turn-over= 1201345530

5. PARTS INVENTORY PERIOD

Inventory Period= 7.42

6. WIP INVENTORY TURNOVER RATIO

WIP Inventory Turn-over= WIP Inventory

7. WIP INVENTORY PERIOD

Inventory Period= 3.51 days

Inventory Period= 3.65 days

8. FG INVENTORY TURNOVER RATIO

Inventory Turn-over= 1605660505

Inventory Turn-over= 1805340520

Inventory Period= 4.91

Inventory Period= 4.97

10. AVG COLLECTION PERIOD

Avg Collection Period =

Avg Collection Period = 39.8 days

Avg Collection Period =

Avg Collection Period = 40.16 days

11. DEBT/EQUITY RATIO

Debt/equity ratio = 2900817082

Debt/equity ratio = 3680070533 100

12. GROSS PROFIT % AGE

Gross profit % age = 12175476500

Gross profit % age = 13664714160 100

13. NET PROFIT % AGE

Net Profit afetr tax

Net profit % age =

Net profit % age =

Net profit % age = 5.7

14. OPERATING PROFIT % AGE

Net profit % age = 12175476500

Net profit % age = 13664714160 100

15. RETURN ON ASSET

Return on asset = 10.25

Return on asset = 7.82

16. RETURN ON EQUITY

Return on Equity = Total Equity 100

Return on Equity = 2900817082 100

Return on Equity = 3680070533 100

Return on Equity = 29.41

Return on Equity = 21.17

17. FIXED ASSET TURNOVER RATIO.

Fixed. Asset Turn-over=

Fixed. Asset Turn-over=

Fixed. Asset Turn-over= 4.22

Fixed. Asset Turn-over= 3.46

18. OPERATING CYCLE

Operating Cycle = 40+126-70

Operating Cycle = 40.16+126-63

Operating Cycle = 96 days

Operating Cycle = 103 days