On the other hand, a higher ICR indicate that the company is able to pay off its interest expense several times and it ensures that there is no default in paying loans. From the above graphical description, it is seen that for 2015, the company is able to pay six times of interest expense (Csikosova, Janoskova, and Culkova, 2019). For 2016, the company is not able to pay off its interest amount, as its operating profit is also negative. Furthermore, in 201, the company has increased its efficiency in paying its interest amounts, as it is not quite efficient as compared to pay off its interest as regular as in 2015 (Auckland Airport, 2017).
The ideal ratio for 2:1 implies that the company has been maintaining its capital structure in an appropriate way. For the Auckland airport company, it is seen that the company is able to maintain in its both capital structure named as debt as well and equity. For 2015, it has the proportion of .31:1 of debt-equity ratio. For 0.29 of the debt equity ratio for 2016 and finally .32 for 2017 (Auckland Airport, 2017). Furthermore, more long-term loans will lead to high level of interest imposition on profits finally; shareholders will have to bear high financial risks. It can lead to higher risks of bankruptcy. For Auckland, there is a need to increase debt so that total equity holders cannot have higher level of interest in the decision-making (Limbong et al., 2018). Nonetheless, company could easily cover its business interest charges by increasing its profitability.
Efficiency ratio comes up with examination of efficiency of total assets, total inventory, and total cash management to generate maximum value to the company. The concept related to operational efficiency, which are being reflected by the efficiency ratios (Meikandaan, Hemapriya, and Bist, 2018). This ratio is being used as a metric as the efficiency of the profits in regards to the operational costs. It has been influenced by several factors such as administration fees, transactional costs, and management fees. It measures the effectiveness of general business practise such as managing inventory, making payment, and receiving payment (Auckland Airport, 2017).
From the above graph and analysis, cash cycle comes up with calculation of cash flows, which tries to examine the exact time and convert the investment into inventory with other resources into input into cash (Auckland Airport, 2016). It is calculated on the basis of three important parts such as days in inventory, days in payable, and days in receivable. Company`s cash conversion cycle can be negative that could mean, where organisation is able to generate cash from the clients earlier to it is obliged to pay off inventory (Auckland Airport, 2015). For the Auckland international, the company constitute only receivables not creditors. The ratio shows that it`s cash conversion cycle is consists of only bills receivables.
Days in receivables, is an outstanding as the day’s receivables, which has been used by organisation calculating and then estimating size of outstanding B/R (Abdullah, and Malik, 2017). A higher ratio will always indicate that the company will face severe issues and problems in converting sales into cash. This reflects that suppliers are not capable to getting the material neither he is aware of making payment on the regular basis. Therefore, the company can take strict actions, which can help them improve the days in receivables (Abdullah, and Malik, 2017).
As a recommendation, it is seen that as per the current strategies made of the future, there is a higher change of getting higher profits in long term because gradually it will show a sign stable profits after 2017. On the other hand, there is a greater need to improve and enhance the position of the company (Auckland Airport, 2016). It is important to maintain debt-equity ratio as it can increase the risks of the shareholders otherwise highly leveraged organisation can suffer from the probability of bad debts, which reduces the risks of expose and dispersion of power of the shareholders. It will lead to excessive imposition of power in decision-making and there will not any proper planning of strategic goals (Auckland Airport, 2016). Furthermore, company has to maintain its liquidity position of 2:1 so that it will be able to maintain its current assets to an appropriate level by increasing the sales, current receivables, prepaid, advances, cash, and bank. Investing in highly leveraged company is not at all safe (Wang, and Wu, 2017).
There is a greater need to improve the profitability situation by increasing the sales, decreasing direct expenses, and reducing the indirect expenses associated with the loans. On the other hand, return on equity is not all attractive; I think there is a greater need to fund the operations of the company so that it can invest in the company and generate revenues at the same time. The company can build its brand image amongst its suppliers, customers, and lenders by making continuous payments to the whole system (Banerjee, Guha, and Bandyopadhyay, 2016). Top-level management must be committed to CSR strategies where it leads to dedication towards the waste management. As local government already supports by funding and investing in the capital projects where SBC green zone as a vehicle can collaborate with the issues related to waste streams. Furthermore, the company can develop local processing ability to achieve higher costing issues related to waste streams. The company can create a strategic alliance with another company so that it can expand its market share as well its offerings, which can finally increases revenue of the company by using effective resources of another collaborator, the company can continuously lead to offer services to customers of world and create its brand name. Management should make effective e strategies and plans to eradicate the operational issues by employing talented workforce in the company. Management can check the regular performance of the company by employing performance management and balance scorecard to generate maximum efficiency of the workers and motivate them to work well. In order to induce them towards fair work and appropriate code of conduct, the company will conduct meetings and introduce monetary incentives as well (Limbong et al., 2018).
After assessing all the details, it could be inferred that if company is having the strong profitability then it should keep higher financial leverage with a view to lower down the cost of capital. Nonetheless, in the given case, it is found that company is having the good profitability and company could easily increase the debt capital to reduce the cost of capital with the strong ability to cover its interest charges. A higher ratio will always indicate that the company will face severe issues and problems in converting sales into cash. This reflects that suppliers are not capable to getting the material neither he is aware of making payment on the regular basis. The company can create a strategic alliance with another company so that it can expand its market share as well its offerings, which can finally increases revenue and sustain in long run.