1013 Words3 Pages

In examining the strengths and weaknesses of Happy Hamburger, Co. it is extremely valuable to consider the appropriate financial ratios available. The ratios used are: current ratio, days sales outstanding, inventory turnover, fixed asset turnover, total asset turnover, return on sales, return on assets, return on equity and debt ratio. Also to be examined will be the effect on ratios that Happy Hamburger will experience as a result of a double increase in: sales, inventories, accounts receivable and common equity. These increases will have an impact on the financial ratios being used in this analysis.
Ratios
Current Ratio. The current ratio can indicate a company’s liquidity and is considered one of the most valuable ratios in analyzing
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This ratio compares the net sales of an organization with regard to its fixed assets. It quantifies the company’s operating performance by indicating the ability the organization has to generate net sales from fixed assets such as: property, plant and equipment. The higher the ratio, the more capable an organization is at utilizing its fixed asset investments to generate sales. In comparison to the industry average of 12.1, Happy Hamburger falls short before the increases at 5.49, but comes a bit closer to the industry average after the increases and has a score of 10.99. With regard to industry average, this could be considered a weakness for Happy Hamburger.
Total Asset Turnover. The total asset turnover ratio is calculated using the organizations sales with regard to its total assets. It is indicative of an organizations efficiency and its ability to generate sales by using its total assets. A higher number is a more appealing ratio, here as it tells us the company is “generating more revenue per dollar of assets (Investopedia.com, 2016)”. Again, Happy Hamburger falls below the industry average of 3, coming in at 1.69 before the increases and 2.11, after. These numbers are not terrible but don’t meet the industry average and would be considered a
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The debt ratio is calculated using short term and long term debt relative to the total assets of an organization. The higher this figure is, the riskier a financial investment the organization is. The industry average has a debt ratio of 55%, a more promising figure than Happy Hamburger had before its increases, 68%. The debt ratio would have been considered a weakness for Happy Hamburger, but with the increased figures taken into consideration, this figure is a strength for Happy Hamburger at 39%, a more favorable figure than the industry average and indicating the organization is a less risky

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