Report to the Shareholders of Decimal Ltd

To: The Shareholders of Decimal Ltd
From: Financial Analyst
Date: [Insert Date]
Subject: Performance Comparison with Industry Averages

Introduction:
This report provides an analysis of Decimal Ltd’s financial performance for the year 2015 in comparison with the industry averages, focusing on the areas of profitability, liquidity, efficiency, and shareholders’ investment.

i) Profitability:
Decimal Ltd’s profitability ratios are below the industry averages.

• Gross profit margin of 18% is significantly lower than the industry average of 28%, indicating that the company is not controlling its costs effectively or is facing pricing pressures.
• Net profit margin of 8% is also below the industry average of 12.8%, showing that Decimal Ltd is less efficient in converting revenue into profit.
  However, return on capital employed (ROCE) of 28% is higher than the industry average of 14%, which suggests that Decimal Ltd is utilizing its capital more effectively than its peers.

ii) Liquidity:
Decimal Ltd’s liquidity position is weaker compared to the industry.

• The quick ratio of 0.52:1 and the current ratio of 1.20:1 are both below the industry averages of 0.84:1 and 1.80:1, respectively. This indicates that Decimal Ltd may face difficulties in meeting its short-term obligations as they fall due.
• The longer debtors collection period of 46 days compared to the industry average of 41 days suggests that Decimal Ltd is slower in collecting payments from customers, which may impact cash flow.

iii) Efficiency:
In terms of efficiency, Decimal Ltd shows mixed results.

• Inventory holding period of 58 days is higher than the industry average of 48 days, implying that the company holds inventory longer than necessary, which may tie up working capital.
• However, creditors payment period of 70 days exceeds the industry average of 50 days, indicating that Decimal Ltd takes longer to pay its suppliers, which can provide a short-term liquidity advantage.
• Net assets turnover of 4.2 times is significantly better than the industry average of 1.9 times, suggesting that Decimal Ltd is generating more revenue per unit of asset compared to its peers.

iv) Shareholders’ Investment:
Decimal Ltd’s performance in terms of shareholders’ investment is weaker than the industry.

• Dividend yield of 3.6% is much lower than the industry average of 9%, meaning shareholders receive lower returns on their investments.
• Dividend cover of 1.4 times is also below the industry average of 3.4 times, suggesting that Decimal Ltd retains less profit to support future dividends.

Conclusion:
Overall, Decimal Ltd shows a strong return on capital employed and asset turnover but underperforms in profitability, liquidity, and shareholder returns compared to the industry. Management should focus on improving cost control, liquidity, and inventory management to enhance overall performance and investor confidence.

Signed:
[Financial Analyst Name]