Martin Manufacturing Company Historical Ratios RATIOS ACTUAL 2001 ACTUAL 2002 ACTUAL 2003 INCREASE (DECREASE) INDUSTRY AVERAGE Current ratio 1.7 1.8 2.5 0.7 1.5 Quick Ratio 1.0 0.9 1.3 0.4 1.2 Inventory turnover (times) 5.2 5.0 5.3 0.3 10.2 Average collection period (days) 50.0 55.0 58.0 3.0 46.0 Total asset turnover (times) 1.5 1.5 1.6 0.1 2.0 Debt Ratio (%) 45.8 54.3 57.0 2.7 24.5 Times interest earned ratio 2.2 1.9 1.6 (0.3) 2.5 Gross profit margin (%) 27.5 28.0 27.0 (1.0) 26.0 Net profit margin (%) 1.1 1.0 0.7 (0.4) 1.2 Return on total assets (ROA %) 1.7 1.5 1.1 (0.4) 2.4 Return on common equity (ROE %) 3.1 3.3 2.5 (0.8) 3.2 Price / earning (P/E) ratio 33.5 38.7 34.5 (4.2) 43.4 Market/ book (M/B) ratio 1.0 1.1 0.9 (0.2) 1.2 Analysis Liquidity: The current ratio and quick ratios for the year 2003 are at 2.5 and 1.3, which are both higher than the industry average. The company has enough to cover short term bills and expenses. Both the current and quick ratios are showing an upward trend compared to 2001 and 2002. The current assets decreased by $ 20,264 to $ 1,531,181 and the current liabilities also decreased considerably by $255,402 to $616,000, a 29.3% decline, thus making the current ratio jump to a 2.5. The biggest decline was seen is accounts payable which decreased by $170,500 to $230,000, a decline of 42.6 %. Activity: The inventory turnover is almost half compared to the industry average, although it managed to increase by 0.3 compared to 2002. The company needs to maintain a constant cost of goods sold and at the same time manage inventory more efficiently to maintain market competitiveness. The average collection period also increased slightly to 58 days, three days increase compared to 2002. The company needs to negotiate or persuade on efficient payment methods to customers to decrease the collection period down to industry average. The total asset turnover increased 0.1 to 1.6 but still failing to meet the industry standard of 2.0. Martin Manufacturing needs to boost sales while maintaining a constant asset value to meet or exceed industry standards. Debt: The debt ratios increased by 2.7% to 57% more than double the industry standard of 24.5%. The long term debt increased from $700,000 to $ 1,165,250 an increment of 66.5% in the year 2002. The company is currently highly leveraged thus it needs to work on reducing long term debts and continue to increase assets. The times interest earned ratio dropped by 0.3 to 1.6 in the year 2003. The company could face difficulties making interest payments in case of a sales slump. Profitability: The gross profit margin is at 27% which is a percent higher than industry standards. The company is performing good and meeting industry standards in terms of cost of goods sold and sales volume. The net income margin decreased to 0.7% in 2003 a decrease of 0.3% compared to 2002.
Click here to unlock this and over one million essaysShow More
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
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
As of December 26, 2004, our liquid assets totaled $10,924,000. These assets consisted of cash and cash equivalents in the amount of $10,642,000 and short-term investments in the amount of $282,000. The working capital deficit increased slightly from $50,359,000 as of December 28, 2003 to $51,041,000 as of December 26, 2004. This increase was due primarily to increases in the loss reserve and unearned premiums related to the captive insurance subsidiary and accounts payable and was partially offset by increases in inventories and receivables.
Speedster Athletics Company has been able to generate favourable gross margins over the last three years consistently over the industry average of 26%. Gross margin is in a declining trend over 2010 to 2011 where 2011 gross margin is 27% (1371/5075*100%) which is 1% lower than 2011, however this is above the industry average level, proving that Speedster company is capable of generating better margins.
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
The net income % ratio has fluctuated from 2013 to 2015. In 2013 the net income % was -82.73 % where it increased significantly to -146.11% in 2014 and then decreased to -95.62% in 2015. In 2013 the growth profit was well below the break even point, in 2014 it increased even more below the break even point (-146.11%). Although the company has recently increased its growth profit in 2015 they are still having problems in this area.
Cash Ratio = Show on balance sheet =151,750 + Current Liabilities = 198,849 = 305.599 / 2= 1.52. However, this is what Aeropostale Corporation started with at the beginning of 2015. This late you know the Corporation has a great loss of income by the end of 2015. Current Ratio = loss current asset 213.138 / current Liabilities 3.944 = -0.56. Aeropostale company ratio is at -0.52 and the company has loss 56. Cents per dollar. This is not looking good for the company finances. Total Loss Current Ratio = Total Assets 206.458 / Total Liabilities, 247.775= -00.1. This showing that Aeropostale has exceeded way over their limited they are at $70.0 million for year of 2015. Their minimum availability covenant by $ 198.6 million they need to generate cash as soon as possible. Quick Ratio = Loss Current Liabilities, 213.138 + Loss Net Credit Sale, 40.808 + Account payable = 303.428 / 2 = -1.51. This mean the that company has no available assets to cover
... show that the company is growing and expanding, property and inventory, as a percentage of assets, should be increasing instead of decreasing. More property and inventory, if it is not owned by creditors, would also decrease their debt to total assets ratio.
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.
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.
The gross profit margin is a useful tool that helps to evaluate the financial performance of a business. Ideally, a company’s gross profit margin ratio should be stable in order to be able to pay for its expenses and generate profit. Dixons Retail plc shows stability in both statements. The results of 7.32% (2013) and 7.47% (2014), indicates that the company has not been going through any forceful financial strategy changes that can affect the business performance. The comparison of