The company is generating Net profit margin in all the 5 years more than its industry average of 3.32% which shows that the company is outperforming with respect to its net profit margin.
Return on assets was also the highest in the year 2006 because the net income was also the highest,and it started to reduce in the later years because of the reduction in its net profits. Same is the case with Return on equity, with a possible increase in net income results in the highest ROE in year 2006 which followed a downward trend due to decline in profits for the later years which can be improved by improving the profitability of the company.The company is outperforming with respect to its industry average by generating higher return on assets and return on equity than the industry average of ROA of around 3.32% and ROE of 6.6%.
|Types of Ratios||Formulas||2005||2006||2007||2008||2009|
Quick Ratio in times
(Total Current Assets – Inventories – Prepaid Expense) / Current Liabilities
|Current Ratio in times||
Current Assets/ Current Liabilities
Liquidity ratios are used to evaluate the company’s ability to payback its short term obligations. The short term liquidity position is often measured by the current and quick ratios. The ideal situation for the current ratio is around 1.5 or 2, whereas, for the quick ratio it is 1 to 1.5. For our analysis, we will be comparing these ratios with industry averages.
The current ratio of more than 2 provides an indication that the company has sufficient current assets to pay back its current liabilities. However, the greater current ratio is considered as inefficiency of the company to utilize its funds to generate more returns rather than keeping it idle. The company’s current ratio is lower than the industry average because the nature of the industry is of uncertain nature.Due to the recession in year 2008, the working capital requirements increased so the company has to manage the certain current ratio to get the credit from its suppliers at relatively favorable terms.
The Quick ratio is defined as the quick assets excluding; inventory and prepaid expenses which cannot be easily converted into cash divided by current liabilities. The company is maintaining a quick ratio abovean ideal situation to overcome the uncertainty of recession. This shows inefficiency of the company by not investing in the securities which provide higher returns. This is relatively acceptable to keep this ratio from 1 to 1.25 and in certain cases it may be favorable for the company to keep this ratio till 1.5 depending upon the economic situation of the economy.
|Accounts Receivable Days||(Accounts Receivables/Net Sales)*365||54||51||51||40||40|
|Asset Turnover Ratio||(Net Sales/ Average Total Assets)||1.03||1.23||1.24||1.46||1.37|
|Parts Inventory Turnover Days||(Parts Inventory/COGS)*365||70||71||70||49||49|
|WIP Turnover Days||(WIP/COGS)*365||7||5||5||4||4|
|Finished Inventory Turnover Days||(Finished Inventory/COGS)*365||99||112||105||74||73|
|Accounts Payable Days||(Accounts Payable/Cost of Goods Sold)*365||117||118||95||70||64|
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