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Introduction
BGC Company Limited is the leading manufacturer and seller of quality glass, packaging materials, and related products. These products help consumers find better packages for their products, such as beer, nonalcoholic beverages, medicine and pesticides, and glass containers for putting exports. The main target for the company includes drink manufacturers, as they are the most significant glass consumers due to their extensive packaging requirements (Gu et al., 2022). Financially, the company has experienced a boom and recession between 2018 to 2020, with 2019 being the most profitable year.
Profitability
A companys profitability entrails the relationship between its expenses and income realized in a given period. In the case of BGC company, 2021 saw a reduced gross profit, 3.9%, compared to 2020 when it had achieved a 6.8% in this ratio. The low profitability experienced during 2021 can be primarily associated with the companys high operating costs or inadequate revenue (Fernández et al., 2021 p. 123439). Generally, the profitability of BGC company in 2021 was lower than that of 2020 due to factors such as higher cost of operations, including increased salary expenses due to overstaffing.
Liquidity
A companys liquidity encompasses its ability to generate cash when needed. Liquidity can indicate a businesss potential in covering the current liabilities using its existing assets. Generally, 2020 had good liquidity since its value was more than one compared to 2021, whose value was less than one. In BGC companys case, 2021 had a current ratio of 0.96 while 2020 had 2.2, making 2020 have good liquidity compared to 2021. Typically, most investors and debtors look for liquidity of 2 or 3 as this means the company can pay off its debts faster, preventing bad debts (Ebeke et al., 202).
Solvency
The solvency of a company refers to the companys capability to meet its financial obligations, including its long-term debts. Solvency evaluates a companys financial health as it assesses the companys performance in the foreseeable future. This economic indicator can be determined by finding a companys gearing ratio, which involves finding the debt-to-equity ratio. A gearing ratio of between 25% and 50% is the best, based on investors and stakeholders considerations as this means the company is of optimal risk, not high or low. For solvency, a value below 30% means the company is profitable as it has fewer chances of debt defaults. In BGCs case, the gearing ratio of 2020 was higher than that of 2021, 32.9% and 68.5%, respectively. This difference means that the company had either higher debts or low assets in 2020 compared to 2021 (OHara & Zhou, 2021 p. 60). Generally, a companys solvency indicates whether the company will profit due to its present debts or not.
Investor Ratios
Investor ratios are those ratios that investors apply to determine whether the company can maintain its profitability and continue with the generation of positive returns against its investment. Two excellent examples of investor ratios are net profit margin and gearing ratio or debt-to-equity ratio. In BGCs case, 2020 had a net profit margin of about 1.2% while 2021 had -0.86%, meaning more investments were achieved in 2020 in 2021 (Aggarwal, 2021). Generally, investor ratios such as net profit margin can help investors determine whether investing in a given company would be feasible.
Conclusion
In conclusion, the four critical financial position indicators, profitability, liquidity, solvency, and investor ratios, are imperative in comparing BGCs position in 2020 and 2021. 2020 showed higher profitability, higher solvency, better liquidity, and better profit margin than 2021. Consequently, 2020 saw many investors due to better ratios such as the gearing ratio, which ultimately led to high profitability.
Reference List
Aggarwal, V. (2021) Optimum investor portfolio allocation in new-age digital assets. International Journal of Innovation Science.
Ebeke, M.C.H., Jovanovic, N., Valderrama, M.L. and Zhou, J. (2021) Corporate liquidity and solvency in Europe during COVID-19: The role of policies. International Monetary Fund.
Fernández, J.M.R., Payán, M.B. and Santos, J.M.R. (2021) Profitability of household photovoltaic self-consumption in Spain. Journal of Cleaner Production, 279, p.123-439.
Gu, Q., Wu, H., Cheng, Z., Zhi, X., Song, Q., Chen, X. and Yang, X. (2022) Low EBI3 Expression Promotes the Malignant Degree of Gastric Cancer. Disease Markers, 2022.
OHara, M. and Zhou, X.A. (2021) Anatomy of a liquidity crisis: Corporate bonds in the COVID-19 crisis. Journal of Financial Economics, 142(1), pp. 46-68.
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