“Liquidity ratios measure the enterprise’s short-term ability to pay its maturing obligations” (p. 243). The liquidity ratios include current ratio, quick or acid test ratio and current cash debt coverage ratio. Current ratio is one of the most fundamental liquidity ratio. It measures the potential of a business to reimburse current liabilities with current assets. According to calculation in part 4a the current ratio in 2013 is 1.2442 and in 2014 is 2.7491 which shows that current assets are more than current liabilities and the MLF will not face any liquidity problem. Quick or acid test ratio is a stricter measure of liquidity of an organization than its Current ratio. The quick or acid test ratio of MLF in 2013 is 0.52 and in 2014 is 1.28 …show more content…
243). Profitability ratio include profit margin on sales, rate of return on assets, rate of return on common share equity, earning per share, price earnings ratio and payout ratio. The profit margin on sales of 2014 is 0.23 and 0.17 on 2013 which shows MLF managed to convert 0.23 of its sales into net income. The profit margin on sales is higher in 2014 than 2013. The rate of return on asset of 2014 is 0.22 and in 2013 is 0.15. Higher values of return on asset shows that business is more profitable. The rate of return on asset of 22 % of 2014 mean that for each dollar in asset, the MLF’s generated 22 cent in profits. The MLF’s rate of return on share equity earned 0.35 in 2014 and in 2013 is 0.39 which means that every shareholders saw a 35% return on their investment in 2014 as compared to 2013 return on investment is higher that is 39%. Higher values are generally favourable because it shows that the company is productive in generating income on new venture. EPS is important profitability ratio, especially for shareholders of an organization, since it is an instant measure of dollars earned per share. MLF’s Earnings per share in 2014 is 4.71 in 2014 and 3.46 in 2013. Therefore, it shows that MLF’s earned 4.71 on each common share which is higher than 2013. MLF’s higher earnings per share indicates that it is capable of generating a significant dividend …show more content…
243). Coverage ratio include debt to total asset, times interest earned, cash debt coverage ratio and book value per share. “Debt to total asset shows percentage of total assets provided by creditors” (p. 244). MLF’s debt to total asset in 2014 is 0.0002 and -0.0001 in 2013 which shows that in 2014 0.0002 of MLF’s asset are financed by creditors and remaining are financed by owners. MLF’s debt to total asset in 2014 and 2013 is low, therefore, lower the degree of leverage and lower financial risk. Times interest earned in 2014 is -1.20 and in 2013 is 1.80. The 2014 negative earning means that MLF’s are not earning enough to pay off its creditors. As compared to 2013, times interest earned in 2013 is high which demonstrates that the MLF has adequate profit to pay off interest expense and subsequently its obligation commitments. Cash debt coverage ratio in 2013 0.12 and 2014 is -0.28. The 2013 cash debt ratio shows that MLF is financially stable and has capacity to reimburse its aggregate liabilities in a specific year from its operations. However, in 2014 MLF has financial stability problems in near future because it does not have the capacity to manage debt payments. Book value per share in 2013 is 11.27 and 2014 is 15.70. Book value per share might be utilized by investors to determine market value of the organisation with
In this case, the reader learns that liquidity is a better than average. The ratio and cash on hand have been better than 2013 from the past years. Moreover, it shows that the hospital has a higher ability to meet its cash obligation because it has more security compared to other hospitals. Funding allows hospitals to control funds and limit investments. Not-for-profit organizations help provide more services and margin of safety. Therefore, creditors look for a margin of safety so that the community that financed a small portion of total financing can be returned to the owners by leveraging. Capitalization ratio measures the funds that were borrowed and the assets that have been used. The coverage ratio measures the number that time they fixed financial charges. The time's interest earned ratio shows the ability of the hospital to meet
Suppliers are mostly concerned with a company 's ability to pay on their liabilities. Therefore, the current ratio and the quick ratio are both looked at by suppliers. The current ratio takes a company’s current assets and divides that by the company’s current liabilities. This number is
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
It is another indicator of liquidity which is determined by subtracting inventory from the current assets and dividing by current liabilities. Inventories are less liquid asset, so it is eliminated in determining this ratio. This ratio is already very less and every quarter it is decreasing which indicates about the poor financial health of the company. But in case of Chevron this ratio is far ahead and fluctuates between 1.35 to 1.46, whereas Exxon values are fluctuating within the range of 0.79 and 0.61. Chevron liquidity positi...
The Current Ratio is calculated by taking the current debt and dividing it by the current liabilities. It is the measurement on how a company can meet its short term liabilities with liquid assets (Loth, Rihar, 2015a).A higher ratio indicates favorable activity. A company should be able to meet it responsibilities with its
The current ratio measures the ability of a business to pay back their liabilities. Kroger’s current ratio for both years was under one, which shows that Kroger has more current liabilities than current assets. This could predict that Kroger is not in good financial health at this time. However, some of their competitors have current ratios under one too. The grocery store industry trends to have lower liquidity ratios, because they keep lower levels of current assets. Their ongoing sales help pay upcoming liabilities. Still, business owners and investors would be looking for a current ratio over one at least.
Overall, Horizontal analysis and financial ratios are essential factors that businesses use to monitor its liquidity. Therefore, in order to improve Apple’s ratios and profitability, the company needs to implement a strategy to increase the company’s liquidity. Business owners or managers should monitor current ratio and acid test ratio as these ratios help us to ensure the company has the proper liquid assets to pay current liabilities, to stay in operations and to expand the company. As we noted in our acid test ratio and current ratio for the company, we show a lower ratio for acid test ratio than the current ratio, which means that the company’s current assets rely on inventory. Therefore, the company needs to convert old inventory into
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
In 2012 the Champion Petfoods company took and investment partner for expansion of their business which name is Bedford Capita. At this point with one sister concern and an investor Champion is running with their full investment. The company is not on any debt securities. The ratio analysis of this company of asset and debt is much
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
The current cash debt coverage ratio dropped from 3.38 to 2.69. This is because the increase in cash from operating activities (26%) is lower than the increase in the average total current liabilities (58%). Again, IQ seems to remain highly liquid nevertheless.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound. Among the study’s findings were that the deciding factor of the predictor of bankruptcy should not be only a few ratios, as the measure of a company’s financial solvency may differ as the firm’s situations differ. The important question is to which ratios are to be used and of those ratios chosen, which ratios are given priority weight.
Profitability ratios express ability of the company to produce profit. This shows how well a company is performing in a given period of time. To compare the profitability for the companies, the investors use profitability ratios that are return on equity, profit margin, asset turnover, gross profit, earning per share. Return on asset indicates overall profitability of assets. It is the relationship between net income and average total assets. GM has 0.034 and Ford has 0.036. This indicates Ford is more profitable. Profit margin is how much of every dollar of sales the company keeps. Computing profit margin, net income divided by net sales. This indicates higher profit margin is more profitable and it has better control. Thus, GM’s profit margin is 3.4 percentages and Ford’s is 4.9 percentages. This indicates Ford has better control profitably compared to GM. Next ratio is gross profit rate. It is how much of every dollar is left over after paying costs of goods sold. Assets turnover represents how efficiency a company uses its assets to sales. This ratio is relationship between net sales and average total assets. GM’s is 0.98 and Ford’s is 0.75. This result represents GM is using its assets more efficiently. Gross profit margin is dividing gross profit, which is equal to net sales less cost of gods sold, by net sales. This ratio indicates ability to maintain selling price above its cost of goods sold. GM’s gross profit rate is 11.6 percentages. Ford’s is 5.7 percentages. GM is higher ratio, and it indicates strong net income. Also, it indicates the company has to spend lower operating expenses and the company is able to spend left money for covering fixed costs. Earnings per share indicate the company’s net earnings to each share common stock. This ratio shows margin between selling price and cost of goods sold. From these companies’ income statement, GM is $2.71 and Ford is $1.82. Because GM’s value is higher relative to Ford’s,
68 Net Profit Margin 2.02% 2.09% 1.87% Amazon Revenue 2045 1902 1745 Net Income 207 167 145 Net Profit Margin 0.27% 0.56% 1.74% Wal-Mart Revenue 1550 1450 1250 Net Income 1920 1810 1327 Net Profit Margin 3.07% 3.39% 3.39% Source: Nasdaq (2017) The financial data of a company is often an indication of the From the financial data, the sustainability and profitability of the company can be established.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.