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Financial environment

Financial ratio analysis assists the management and other stakeholders to know the performance of the firm and also make a comparison with other firms in the industry (Bringham & Ehrhard, 2016). Genesis Energy ratios analysis discussed include the liquidity (quick ratio), profitability (operating margin), asset management (asset turn over), leveraging (debt-to-equity), market value (book value per share).

Table 1: Genesis Energy ratios (Morningstar, 2017)

The above data is collected from Morningstar; Genesis Energy price/earning’s performance is better than the industry from 2014 up to 2015 where the firm’s performance is below the market average (Morningstar, 2017). According to price-to-sales ratios, Genesis is performing below the S&P 500 from 2013 to 2015 according to the trend.

Genesis Energy financial ratios analysis

Genesis Energy’s operating margin is increasing from 2013 to 2015; this shows that the firm is improving its ability to generate more revenue from sales. This firm’s asset turnover ratio is decreasing from 1.66 in 2013 to 0.52 in 2015; asset turnover measures the ability of the firm to utilize their assets to generate revenues. Genesis debt/equity ratio is reducing from 1.77 in 2013 to 1.44 in 2015. A decrease in debt/equity ratio means that there is a reduction in firm’s debt. Book value per share ratio measures the value of common stock in the firm. Genesis book value per share is reducing from 0.004 in 2013 to 0.0034 in 2015 representing a decrease in the firm’s common stock (Bringham & Ehrhard, 2016). Quick ratio is increasing from 0.76 in 2013 to 0.84 in 2015. Quick ratio measures the ability of a firm to meet its short-term debts using current assets.

Capital financing

According to the management, there is need to improve the firm’s cash flow and increase the working capital. In order for the firm to have steady cash flow and working capital the management should reduce debt financing. The firm may raise capital through angel equity; it involves selling some ownership stake to a respected executive who is willing and ready to give Genesis energy fund without many requirements such as security (Rao, 2012). Another method of raising capital is through issuance of a rights issue or a new issue. Rights issue will give a priority to the existing shareholders to buy the firm shares at a discount and through a new issue the firm will be able to raise funds by selling its stock to new investors. Raising capital through shares is a cheap long-term way of financing a firm. Genesis Energy can also raise capital through issuance of bonds. Bond is a cheap long-term source of capital for a firm. The firm will be paying an agreed interest to bond holders until bonds mature. Source of cheap source of capital is important to the success of any organization in order to reduce the cost of capital (Bringham & Ehrhard, 2016).

Genesis’ strategies

The firm will require strategies to enable it remain competitive in the local and international market. The firm’s management should focus on industry based strategies, resource based strategies and institution based strategies. Industry based strategies will focus on various changes affecting the energy industry and try to come up with a competitive edge over the competitors in the same industry. The resource based strategy will involve the firm carrying out the SWOT analysis in order to identify strength and weaknesses. After conducting a SWOT analysis the firm will be able to maximize on its strength and improve on its weaknesses. The institution based strategy involves combining the resource and industry based strategies in order to achieve the organizational goals.

Macroeconomic factors

Macroeconomic factors are global and national events which are out of control of a firm. There are positive and negative macroeconomic factors the businesses are faced with. Genesis Energy operates in oil and power industry and may severely be affected by negative macro factors such as unemployment, inflation, interest rate and exchange rate. Unemployment reduces the individual’s purchasing power leading to a decrease in demand. For example reduction in consumers’ purchasing power will reduce the demand for Genesis’s oil and gas products leading to a decrease in firm revenues. Another microeconomic factor that may affect Genesis firm is change in interest rates. Interest rate is the cost of capital that a firm incurs from debt financing. An increase in interest rates means that a firm will incur more cost of paying the interest increasing the firm’s cash out flow. The other macroeconomic factor that may affect Genesis is the fluctuations in the exchange rate risk. Exchange rate risk affects businesses operating in foreign countries, firms that import or export raw materials or products (Bingham & Ehrhard, 2016).

Risk assessment

The first factor the firm has to consider is human capital. Operating in a foreign country requires a firm to hire new employees from the local community. Genesis should be familiar with labor laws in different countries and how they will affect the firm’s employment policy (Kaiser, 2016). It will also be important to consider the cultural barriers that may be experienced and how to overcome them. Another important risk factor that needs to be assed is the technology; different countries have different laws regulating the information communication and technology. Also technology expansion is an expensive venture particularly when operating overseas branches. Genesis should centralize the technology in order to reduce the operation costs and maintain an effective communication with the foreign branches (Moore, 2012). It will be important for the firm to consider the economic conditions of foreign countries before opening the branches. Some countries may be facing hard economic times making it difficult for the firm to make profit. Conducting a research before venturing into foreign trade will be the less risky method of the firm to venture into Indian market. A research will provide the required information about the government regulations and the economic condition before starting its operations. The most risky mode of entry is venturing into foresight countries without conducting a research (Kaiser, 2016). Without information the company will not know what is expected to do due to variations in laws and regulations in different countries.

Reference

Ehrhard, E. F. (2016). Financial Management: Theory and Practice. Boston: Cengage Learning.

Kaiser, D. (2016). Six Elements to Starting a Business Overseas. International man, 1-2.

Moore, L. (2012). Three risks Management Concerns in Global Expansion. Insights, 2-3.

Morningstar. (2017, March 1). Morningstar. Retrieved from http://financials.morningstar.com/ratios/r.html?t=GEL&region=usa&culture=en-US

Rao, D. (2012). The 12 best Sources of Business Financing. Forbes, 1-2.