Final Justification of identification of each ratio or trend as a strength, weakness, or no concern is even. 2. No outside sources where used to find the industry data quartiles because those numbers where already given on the attached “Statement Analysis Template Sheet’ and we have assumed that the facts are current. Ratio and what it measure I formula for calculating I current ratio finding for year 12 | year 11 the industry data quartiles I This ratio is Up or down from last Year Indicated and Justification I Measures a company’s ability to pay its current liabilities with its current assets.
I Current Assets/Current Liabilities I I I Decreasing Weaknesses reason why this is marked as Weakness is because it falls below the top industry quartile of 3. 1 and the middle industry quartile of 2. 1 . The 1. 77 is above the lowest quartile of 1. 4 but since this time last year the companies current ratio was 1. 86 this shows a decline and therefore based on all the information give must be listed as a weakness. I measure of how well a company can meet Its short-term financial liabilities Cash + Short Term Investments + Act. Race.
Net/Current Liabilities I I I Decreasing Weaknesses reason why this is marked as a weakness is because this ratio is very low meaning that if the company would eve to pay all their liabilities immediately they would have a great deal of trouble making this happen. That is because . 43 means that the company has . 43 cents of quick assets to pay each $1. 00 of current liabilities leaving . 58 cents in liabilities unpaid. Moreover, the reason why this is marked as Weakness is because it falls below all the industry quartiles of 1. 6, 0. 9, 0. 6.
This means that we are blow the industry lowest ranked quartile of 0. 6. Also, when you look at this the acid-test ratio for last year you can easy see that our position has fallen dramatically from last year’s ratio Of . 4 to this year ratio Of . 43 Indicating that there is a huge issue with the company’s ability to pay its short term debts. Measure company’s efficiency in turning its inventory into sales I Cost of goods sold/Average Inventory I I Decreasing I Weaknesses reason why this is listed as a weakness is because of the very low number of 52 and the fact that it is well below the industry standards.
The higher the turnover the faster the product is selling. It is below the 1st quartile of 13, it is below the second quartile of 10. 2, it is below the last quartile of 8. , and has fallen even lower than last year ratio at 6. 1 so that is why it would be a weakness. I measures the number of times Accounts Receivable were collected during a period Turnover – Credit Sales/Average AR I I I Decreasing I Weakness This reason that this is listed as a weakness is because 30. 5 is lower than last year’s ratio of 32. 2, it is lower than and the industry standards.
So from that standpoint it is reasonable to call this a weakness. It is below the 1st quartile of 35. 2, it is below the second quartile of 33. 5, and it is below the last quartile of 31. 4. | tells you the average number f days it takes to collect an account receivable | 2 Step Processes 1 – Net Credit Sales/365 = One days escalates 2 – Average Net Accounts Receivable/ One Days credit sales I 11. 1 Increasing I Strengthen reason why this is listed as a Strengthen because the ratio for last year Was 11. 1 and has raised to 12. 0. Although it is below the 1st quartile of 15. , and the it is below the 2nd quartile of 13. 5, it is above the 3rd quartile of 1 1. 3. Indicates what proportion of debt a company has relative to its assets Total Liabilities/ Total Assets I I Increasing Strengths reason why this is marked as Strengthen because the ratio for last year was 28. 34% and has raised to 29. 94%. The ratio is below the 1st quartile of 30. 0%, and it is below the 2nd quartile of 45. 0%, it is below the 3rd quartile of 66. 0%. Indicates the extent of which earnings are available to meet interest payments.