Hastie Group Limited Company (Term Paper Sample)

HASTIE GROUP LIMITED COMPANY
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Risks To Be Considered In Hastie Group Company
Client/Counter-play Risks-It's the type of risks which arises when the clients in which the company has extended credit to have defaulted to pay. The failure to payment can be as a result of the state that the client is under financial distress or when he/she is insolvent. It is therefore evident that when Hastie company have extended credit to the clients, and they have default, they will not be paid for the services rendered hence may lead to inefficiency and adverse effect on the financial performance and position of the Hastie Group. (Calder 2005). Also, there shall be additional costs that may be incurred. To counter this risk, Hastie Company must maintain a provision for bad and doubtful debts to cater for the bad debts that the company cannot collect from the debtors. The provisions are not created, and the company incurs a loss due to bad debts then their financial statement will be affected. Thus, it will give a bad reputation to the investors who might eventually drive them away
Risks associated with project delays- Many a time projects experience start time or end time delays. It may be due to the changes in the scope of work, changes in the legal affairs, scarcity of quality materials, the supply of labor, natural disaster and delay in the necessary approvals. There are costs embedded in these delays since Hastie Company can also be affected by this uncertainty; they can incur a very high cost that can be very hard to recover. It can lead to the liquidation of the company if not put into check. Thus, it can lead to loss of confidence from the investors to the company at large.
Litigation and legal risks-These are risks that are associated with the laws and policies in which the business is incorporated. Hastie group is exposed to a variety of legal risks which includes litigation and disputes. These risks are very vital to the clients who have carried defective work potentiality and consequences in which the company becomes liable when the insurance third party policy is used. The risks can be managed by maintaining an appropriate level of indemnity insurance while at the same time seek to enhance efficient commercial practices. When these risks are not taken into consideration by the management, then they can adversely affect the normal operations of the business and eventually makes the investors lose trust in the company.
Industrial relation Risks - These are risks that arise as a result of disputes of employees as a result of labor laws, industrial actions like demonstrations and strikes. If they all happens, the investors’ capital can be put at risks and at the same time the company can run at a loss make it undergo receivership. On the other hand, he investors will lose interest in the company hence will not venture into the company.
Reputation and relationship risks-A company that has a goodwill always attract more investors unto it. When a company has a bad image, no investor will be interested in investing his/her capital. Therefore, it‘s very important for the Hastie Company to keep in check all aspects to maintain a good reputation.
Key financial risks that can affect investors and very important to Hastie Group
Financial covenants- If the company experiences a continuous reduction in earnings and returns, they can be a force to breach the financial covenants they made with the stockholders. It can, therefore, force the Hastie Group to repay all the debt and cancel all its credit facilities. The actions can impair the operations of the company and hence drives the investor a way.
Interest rates risks- The fluctuations of interest rate can expose both the investor and the company at the risk of financial loss. The problem, therefore, can be reduced by the company in the short or medium terms through hedging. Hastie Group is doing this by the purchase f forward contracts and swaps I order to speculate and hedge for the future markets. The action gives the investors confidences well as the board of directors and key stakeholders of the company.
Exchange rates risks- Depreciation or devaluation of currencies can adversely affect the performance of the business. Hastie Company’s operation is not an exceptional in this case. Thus, investors should check keenly on the exchange rate figures which the company have used in the computation of forecasted earnings and the corresponding sensitivity and scenario analyses on the effects of interest rates before venturing into the business. The company should also take the role of hedging all the risks associated with the exchange rates in order not to make losses or experience a decline in revenue and earnings.
Taxation risks as a result of share market fluctuations- The taxation rule both from the host country and the foreign markets can influence the returns of both the investor and the company. When the value of share decline, if the investor decides to sell their shares, then they might not get the par value. The factors that might lead to these fluctuations may include movement in the international share market, movement in the local exchange and interest rates and the investors’ sentiments in both local and international markets.
The underwriting risks- When the underwriting agreement has been terminated either due to a breach of contract or non-satisfaction of underwriting conditions then the risk of loss o the company or to the client arises. These might cause adverse consequences to the investors and the company at large.
Analysis of the performance for the six preceding years
The net profit after tax have been increasing for the first five years then dropped in the sixth year. The first year they recorded 1.7% of the profit after tax margin. It has been increasing up to the fifth year where the company recorded a margin of 3.3%.then in the sixth year the margin dropped to 2.4%.the drastic fall was caused by the increase in the tax expenses and bad strategies and assumptions put in order to control risks and manage the entire organization. Also, there was an increase in debt provisions and cost concerning acquisition of assets.
Moreover, there are risks that can be able to influence the financial performance of the company. The main risk is the foreign exchange risk. The company is contemplating to curb this risk by the use of the forward contact or swaps. However, this hedging process does not cover the share capital, earnings and reserves of the foreign subsidiaries. Hastie company also have the plan to hedge more than 50% of the interest rates risks for two years and also hedge minimum debt repayment by 68% and debt repayment by 83%
The value of the total assets increases from the first year all the way to the sixth year. Moreover, there was an increase in earnings for all the preceding years, and also revenues did also show a remarkable increase. The increment is not being reflected in the final net profit analysis due to increase in the expenses which is recovered from the gross.
There is an increase in both the profitability ratios and liquidity ratios over the period with the current ratio, and cash ratio increases over time while return on assets and return on equity also increases in the same manner.
Reasons for the above performance
* The Hastie Company Group have set various strategies that will help the control exchange rate risks and interest rates in order not to adversely affect the normal operations of the business.
* Due proper financial recording that help them to evaluate the progress of the company. The development statement of financial position, financial statement and calculation of ratios help the company to know their progress in different departments which forms the company.
* The company has introduced the provision for bad and doubtful debts that can be used to cater for the clients who have defaulted payment. Evidently, this will aid the company if any case the client’s defaulted payments due to bankruptcy or insolvency.it help the company to be run without any shock since the risk arising from the debtor is controlled.
* There is a proper delegation of duties and programs to employees according to areas of specialization.it, therefore, will increase efficiency in the organization hence improves both efficiency and productivity of the company.
* For company’s performance to incline as shown by the Hastie Com...