Principles of Accounting

Cash Flows from operating activitiesNet Income After Taxes44,220    Depreciation                            20,000    Change in Accounts Receivable(50,800)    Change in Inventories120,800    Change in Accounts Payable    29,600    Change in Accruals    4,000        Cash Provided By Operating Activities        167,820Cash Flow from Investment Activities    Increase in Gross Fixed Assets                  (36,000)        Cash Provided by Investment Activities            (36,000)Cash Flow from Financing Activities    Change in Notes Payable                    25,000    Change in Long Term Debt                                    101,180    Change In Stockholders Equity                0    Dividends Paid                        (22,000)        Cash Provided by

Financing Activities104,180Net Increase in Cash and Marketable Securities 236,000The operation side of company is not performing very well as we can see that the difference between the last years Net Income and this years Net Income is 43,740. This dramatic decline must impact negatively on companys future plans of extension because company didnt get what it desires to achieve it future goals. There is a significant change in Accounts Receivable and it was increased by 50,800 which impact negatively on cash reserves of the company and company must wait a little longer to get cash owed by customers. We use a big amount of cash for purchasing inventories this year, management should monitor inventory to minimize the amount keep on hand to avoid purchasing of extra inventories. We should use accounts payable and accruals as a tool to increase our cash reserves, but our purchases must not be greater than total sales due. We must pay our bills on due dates unless there is a discount for early payments. We use 36,000 to increase our gross fixed assets, if company would plan to open an office in Miami, management must avoid purchases unless until necessary. Company must apply to acquire new debt from bank to improve its debt ratio and increase the leverage. There is no change in Stock holders equity, management must think about issuance of new shares to get cash and to stabilize the condition of company. The net increase in cash and marketable securities is not well enough that of last year, management must take serious steps to improve the operating performance of company to stabilize the financial condition.

2) Earnings per Share
    Earning per Share for 2007
                        87,960100,000  0.8796share
    Earning per Share for 2008
                        44,220100,000  0.4422share
The EPS in 2007 is 0.8796share but in 2008 it declines to almost half of it that is 0.4422share. This dramatic decline in EPS may harass the shareholders and in result they may selling out there shares because of poor performance of company. Company must improve its performance to avoid any type of misunderstanding between company and share holders.

3) Liquidity Ratio
    Current Ratio                1650800540200 3.05X
    Quick Ratio                1650800-836000540200 1.50X
Activity Ratio
    Inventory Turnover            3250000540200 6.01X
    Average Age of Inventory        3656.01 60.73 days
    Average Collection Period        402000385000036538.11 days
    Average Payment Period        1752000.833250000365 24 days
    Fixed Asset Turnover            3850000360800 10.67X
    Total Asset Turnover            385000016508002.33X
Financial Leverage Ratio
    Debt Ratio                5402001650800 32.72
    Time Interest Earned Ratio        149700760001.96X
    Fixed charge Coverage Ratio    1497004000040000760001.63
Profitability Ratio
    Gross Profit Margin            6000003850000 15.58
    Operating Profit Margin        1497003850000 3.88
    Net Profit Margin            442203850000  1.14
    Earning per Share            44220100000  0.4422
    Return on Total Assets        442201650800 2.67
    Return on Total Equity        44220685988 6.44
Market Ratios
    PriceEarning             60.4422 13.56X
    Market to Book Ratio        Book Value share 460000100000 4.6
64.6 1.30X
EvaluationYearIndustry AverageCross-
SectionalTime-
SeriesRatio20072008200820082007-2008OverallLiquidityCurrent2.33X3.05X2.7XGoodGoodGoodQuick0.84X1.50X1.0XGoodGoodGoodActivityInventory Turnover4.00X6.01X6.0XGoodGoodGoodAverage Collection Period37.35 days38.11 days32.0 daysPoorPoorPoorFixed Asset Turnover9.95X10.67X10.7XOkOkOkTotal Asset Turnover2.33X2.33X2.6XOkOkOkDebtDebt Ratio32.7832.7250PoorOkOkTimes Interest Earned3.34X1.96X2.5XGoodOkOkFixed Charge Coverage2.431.632.1GoodOkOkProfitabilityGross Profit Margin16.5515.58NANAOkOkOperating Profit Margin6.093.88NANAPoorPoorNet Profit Margin2.561.143.5PoorPoorPoorEarnings per Share0.87960.4422NANAPoorPoorReturn on Total Assets5.982.679.1PoorPoorPoorReturn on total

Equity13.256.4418.2PoorPoorPoorMarketPriceearning9.66X13.56X14.2XOkGoodOkMarketbook1.84X1.30X1.4XOkOkOkCurrent ratio of company is comparatively good enough from last years ratio and industry average Ratio. Companys liquidity position is very good. Companys quick ratio is also good in comparison with last years ratio and industry average ratio. Company is able to pay its current liabilities if the accounts receivable can be collected. The inventory turnover ratio shows that company holds not much inventory in hand and it is productive and it represents investment with high rate of return. The ACP is very much poor and the delay in collecting receivables is well above then industry average. Fixed asset turnover is improved and company is using its fixed assets as intensively as other firms do. Companys total asset turnover ratio is somewhat low, indicating that the company is not generating a sufficient volume of business. Debt ratio shows that the financing provided by shareholders is much more then from long term debts and the industry trend is half financing from debt and half from shareholders. TIE ratio shows that company is covering its interest by a moderate margin of safety company would face difficulties if it attempted to borrow additional funds. Companys fixed charge coverage ratio is well below the industry average it seems that the company is relatively high level of debt. The net profit margin is below the industry average and its just because company must have to pay around 50 of its income as interest. ROA is very low and its just because of companys low basic earning power and high interest costs. ROE is also very much lower than last year and industry average it shows that the stockholders didnt sufficient return on their investment. PE is below the average shows that company is somewhat riskier than most. MB ratio is below the average it shows that investors are not willing to pay more for a dollar of companys book value.
4) DuPont Analysis
    ROA                    1.142.33 2.65   

Manelcom Inc. made 2.65, or 2.65 cents on each dollar of sales, and its assets were turned over 2.40 times during the year. Therefore, the company earned a return of 2.65 on its Assets.
    FLM                    1650800685988 2.40X
    ROE                    2.652.40 6.36

The return on equity is 6.36, or 6.36cents on each common stock share. Therefore, the company earned a 6.36 return on its equity. The biggest weakness of the company is hike in expenses even though their sales have increased the rise in expenses has almost halved their income. Another weakness is that the stock prices of the company is fallen, which means they cant rely on raising more equity to finance the opening of the new office. Also their average days to recover receivables are much higher as compared to the average days for payables. The good thing is that the company is highly liquid and the turnover is pretty good.

5) Through the year 2008 the cash inflows are pretty much lower than the previous year. Opening office in Miami, Florida, to promote sales to Caribbean and Latin American markets would cost 85,000 more to cover the expenses of that office per year. The financial position of company is not in that condition to afford that expense because of dramatic decline in companys yearly profit and EPS. There is no guarantee that the marketing development plan would succeed. During 2-3 years of marketing development plan, company must bear all the expenses which may also affect its performance in coming years. To improve the companys overall performance management must take steps and consider the key issues which are affecting the financial condition of the company. First of all company should establish good credit policies for sales on credit. Age accounts receivable monthly and follow well defined collection methods. Company should lease equipments instead of purchasing them and monitor inventory to avoid excessive purchasing. Sell out some assets to improve total assets turnover. Company must control its expenses specially COGS. Even though sales has increased, the rise in expenses affect badly on their income. Company must control its expenses to increase its profit. These higher expenses will result in low net profit margin and as a result EPS falls down. Company should raise its funds by borrowing, management must avoid raising funds through equity because the share prices is already fallen and if they issue new shares, this will bring down the share prices in the market. Company should increase its sales and prices to improve its financial condition. Company must review its financial policies to stabilize the financial condition of the company.