September/ October

New World
2017
Baking
Materials
Financial
Report
Profitability, Cash flow, Liquidity and
Efficiency Analysis

CENE Partners
(CENE PARTNERS is made up of a team of financial research
analysts who periodically analyze the financial health of its
business client to identify any potential pitfalls which are not
apparent, and provide solutions that meet University of Exeter
and London Business School standard.)
09025334117
 CENE Partners
(Experts at Reducing Your Business Cost)
09025334117

Table of Contents
Executive Summary............................................................................................................... 2
Introduction............................................................................................................................ 2
Method................................................................................................................................... 2
Results................................................................................................................................... 2
Observation 1:.................................................................................................................... 2
Observation 2:.................................................................................................................... 5
Observation 3:.................................................................................................................... 6
Observation 4:.................................................................................................................... 6
Observation 5:.................................................................................................................... 7
Observation 6:.................................................................................................................... 7
Conclusion and Recommendation..........................................................................................8
References............................................................................................................................. 8
Appendix................................................................................................................................ 9

Figure 1: New World Baking Materials has a dangerous negative cash flow of nearly NGN 4
million..................................................................................................................................... 5
Figure 2: New World Baking Materials has to move from negative to positive through
aggressive receivables collection...........................................................................................5
Figure 3: New World Baking Materials was profitable for the month.......................................7
Figure 4: The net profit percentage is quite low compared to our industry average of 19%....7
Figure 5: New World Baking Materials has a low break even before its starts making a profit
which is good......................................................................................................................... 8
Figure 6: New World Baking Materials large equity to liability is good....................................8
Figure 7: New World Baking Materials has a better inventory turnover than our industry
average.................................................................................................................................. 9

Table 1: The list of people or companies that are owing New World Baking Materials............4
Table 2: The total amount of money we believe will not never be collected............................4
Table 3: New World Baking Materials compared to other investment vehicles. (Naij.com,
2017)...................................................................................................................................... 8

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Executive Summary
In September-October, the New World Baking Materials re-invited CENE Partners to perform
its managerial accounting to evaluate its profitability, cash flow, liquidity as well as efficiency
to identify any potential problems with the firm. After our research we discovered that
although the business was efficient, fairly liquid and profitable, the company is in serious risk
of going bust as a result of its negative cash flow which is because of its poor account
receivables management. We have concluded that management should thoroughly follow
the account receivable policy provided to aggressively turn the cash flow positive.

Introduction
This is the monthly financially analysis of New World Baking Materials to identify its
profitability, cash flow, liquidity and efficiency.

Method
The monthly accounting cycle of September to October was performed in accordance to
IFRS.

Results
Observation 1:
New World Baking Materials as shown in Figure 1, has a negative cash flow of an
astonishing NGN 3,930,656.33, which is as a result of poor debtor/credit management. This
is extremely dangerous as it could lead the business to collapse, if most of the receivables
turn into bad debts. The company must aggressively get back its money. Figure 2 below
shows where the companys cash flow is and the ideal area where its cash flow will/should
be.

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New World Baking Materials Net Cash Flow

NGN -

-NGN 500,000.00

-NGN 1,000,000.00
4 weeks 28 October 2017
-NGN 1,500,000.00

-NGN 2,000,000.00

-NGN 2,500,000.00

-NGN 3,000,000.00

-NGN 3,500,000.00
-NGN 3,930,656.33
-NGN 4,000,000.00

Figure 1: New World Baking Materials has a dangerous negative cash flow of nearly NGN 4 million

This is where New World

Baking Materials cash
flow should be.

This is where New World

Baking Materials cash
flow is.

Figure 2: New World Baking Materials has to move from negative to positive through aggressive receivables
collection

Table 1 below, is provided to show the list of people as well as companies that owe New
World Baking Materials, which is nearly NGN 5 million. While the actual calculated total, is
nearly NGN 3.9 million, we believed that some of the debtors may have paid, which the

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C.E.O, Mr. Chukwunyere Nwafor, has not informed us, however that will be corrected in our
next meeting and report.

Table 1: The list of people or companies that are owing New World Baking Materials

Table 2: The total amount of money we believe will not never be collected

From our calculation as illustrated in Table 2 above, we believe that New Baking Materials
may never collect NGN 69,469.50 of the money owed it. So, to avoid its amount from getting
higher, management has to aggressive go and collect its receivables.

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Observation 2:
New World Materials as illustrated in Figure 3 and 4 below, has a net profit of NGN
958,774.20, which is 4.17% of Total Income. This is good but compared to our Industry
Average of 19%, this profit is quite little. However, this low profit margin will be looked at
thoroughly in the future, because the main issue that threatens the survival of the company
that needs to be solved urgently is its cash flow crisis.

New World Baking Materials Net Profit

NGN 1,000,000.00
NGN 958,774.20
NGN 900,000.00
NGN 800,000.00
NGN 700,000.00
NGN 600,000.00
NGN 500,000.00
NGN 400,000.00
NGN 300,000.00
NGN 200,000.00
NGN 100,000.00
NGN -
4 weeks ended 28 October 2017
NET PROFIT

Figure 3: New World Baking Materials was profitable for the month

New World Baking Materials

Profitability Chart

Depreciation; 0.03% Non-operating Income; 0.01% NET PROFIT; 4.17%

Miscellanous Expense; 2.12%
Rent; 0.23%
Administrative Expenses; 0.13%

Cost of Goods Sol d; 93.30%

Figure 4: The net profit percentage is quite low compared to our industry average of 19%

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Observation 3:
In Figure 5 below, we can see that New World Baking Materials has sell as much as
NGN 3,107,674.69 before it can start making a profit. From further analysis we discover that
the companys breakeven is 13.53% of its total sales, which is lower and better than our
CENE Partners Industry Average of 18.11%. What this means is that, the company after
making sales up to 13.53% of its total sales, started making its profit which is very good, so
in other words making a profit is not so difficult.

3,107,674.69

21,805,617.00

207,450.00

Figure 5: New World Baking Materials has a low break even before its starts making a profit

Observation 4:
New World Baking Materials business is more reliant on its equity to fund its asset than
liability, however with most of the liabilities current in nature, the company will have to
embark on an aggressive program to get back its money from all its debtors.

Value of New World Baking Materials

Tota l Li abi l i ties ;

45.31%
Tota l Equi ty; 54.69%

Figure 6: New World Baking Materials large equity to liability is good

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Observation 5:
New World Materials gets rid of its stocks 3.5 times in a month, ie every 8 days its inventory
is finished. As can be seen in Figure 7, when compared to our industry average of 24 days,
we can say New World Materials makes a lot of sales volume and has less inefficient stock
on hand. This is very good.

Stock turnover (Days to get rid of inventory)

25 24

20

15

10 7.73

0
New Worl d Baki ng Materi al s CENE Pa rtners Industry Average
Figure 7: New World Baking Materials has a better inventory turnover than our industry average.

Observation 6:
In Table 3 below we can also see that, New World Baking Materials has a return on equity
that is 12.62% which is higher than all Nigerian banks monthly Fixed Deposit interest rate.
So what this means is that if I invested in New World Baking Materials instead of the fixed
deposit of any Nigerian bank, I will get back more than twice the amount from their fixed
deposit, which implies that New World Baking Materials has a higher return and more
profitable.

S/No. Name of Bank Fixed Condition Ranking

Deposit
Interest
Rate (%)
New World Baking 12.62
Materials

1 Sterling Bank 5.5 For three months. 1st

2 Sterling Bank 5.25 For two months. 2nd
3 Sterling Bank 5 For one month. 3rd
4 GT Bank 4.5 Investment should be half a 4th
million, duration is not important.
5 Diamond Bank 4.5 Investment should be half a 4th
million, for three months.
6 Diamond Bank 4.35 Investment should be half a 5th
million, for two months.
7 Diamond Bank 4 Investment should be half a 6th
million, for one month.
8 Wema Bank 3.75 Investment should be half a 7th

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million, for three months.
9 Stanbic IBTC Bank 3.5 Investment should be half a 8th
million, for three months.
10 Wema Bank and 3.25 Investment should be half a 9th
Stanbic IBTC Bank million, two months.
11 Wema Bank and 3 Investment should be half a 10th
Stanbic IBTC Bank million, one months.
12 First Bank 3 Investment should be half a 11th
million, three months.
13 First Bank 2.7 Investment should be half a 12th
million, two months.
14 First Bank 2.5 Investment should be half a 13th
million, one months.
Table 3: New World Baking Materials compared to other investment vehicles. [ CITATION Nai17 \l 2057 ]

Conclusion and Recommendation

Overall it is safe to say that New World Baking Materials is a profitable business because of
its net profit as well as return on equity when compared to the fixed deposit interest of all
Nigerian banks. However, the company has a serious cash flow problem that could make the
business go bankrupt. The goal of management as well as CENE Partners right now, will be
to create a credit collection plan and stick ruthlessly with it, to turn the tide within the next
two to three months.

References
Naij.com, 2017. Best fixed deposit rates in Nigerian banks 2017. [Online]
Available at: NAIJ.com Read more: https://www.naija.ng/1130104-best-fixed-deposit-rates-
nigerian-banks-2017.html#1130104
[Accessed 11 11 2017].

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Appendix

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