Finance Issues during the First Five Years of a New Company Essay

Finance Issues during the First Five Years of a New Company - Essay Example Accumulated losses of the first 3 years have only been neutralized in the last accounting period for which actual results are available. Consequently, the company has never declared a dividend and does not even forecast one for the first year of forecasted business results. Â  2. The Gross Margin has improved from 18.75% in 2004 to 21.57% in 2005. The forecast Gross Margin for 2006, at 22.92% is only slightly higher than the latest achievement of 2005. However, fuel costs, which are significant for a business such as that of PDS is forecast to rise to 26.04% of revenue, as against 25.49% in 2005 and 25% in 2004. It appears that PDS is not able to secure protection against a major inflation driver into its business contracts. However, PDS has been able to reduce variable labor expenses from 56.25% of revenue to just 52.94% in 2005 and expects the trend to continue with a forecast of just 51.04% in 2006. These are significant productivity gains in a challenging human resources environment. Similarly, staff salaries are forecast to remain constant in 2006 compared to 2005, though net profits will more than double. Â  3. Leased capacity utilization has improved very significantly during the past five years, considering the remarkable rise in revenues. However, depreciation at less than 5% of the gross block in vehicles seems to totally inadequate. The depreciation reserve is entirely inadequate and distorts the profitability picture, including the basis for taxation. Â  4. Though the debenture loan and bank overdraft show plenty of scope for gearing compared to the Gross Block, the company does not have any immovable fixed assets.