Page 6: Making your assets work for you
In 2001 MFI's profit and loss account showed the following details:
This profit has come from assets valued at £375.5m. This represents a return on capital employed of 16.48 For this line of business, this outcome is a good result. In addition, MFI was able to benefit from receiving net interest of£3.2m on positive cash balances in contrast with the late 1990s when it was paying out huge sums in interest.
With such profit figures, MFI is able to grow through internally generated funds. In addition, the company has focused on making all its assets work profitably. Idle assets do not generate cash, so MFI seeks to maximise the profit potential of all assets. For example, it has embraced website technology. Customers can now order online 7 days a week, 24 hours a day. This represents highly efficient use of key MFI fixed assets - its computer network system and distribution system.
Stock is another important business asset. Idle stock becomes obsolete, can get damaged and ties up capital that could be used more effectively elsewhere in the business. MFI is seeking to optimise the stock carried across its business.
For example, it has increased the number of stockturns through developing an integrated supply chain, so that stock can be delivered quickly to where and when it is needed, rather than holding unnecessary stock. By providing the customer with 'products that delight'. MFI ensures that stock is sold quickly and turned into cash, which can then be used to generate further profits.
MFI has also worked hard at reducing debtors by offering competitive rates of trade credit to its trade customers i.e. builders.
In addition, the company works closely with its suppliers to negotiate better buying terms.