Question

97. What is the conclusion to draw from this data? Sales/Assets 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2017 2018 Plan Industry

Answer 1

97. Sales/Asset- this represents a financial ratio known as asset turnover ratio, which tells how a firm is monetizing it's assets to generate revenue. Business with low profit margin has higher ratio than compared to high profit ones. Looking at the graph it can be said that Industry is low profit margin area compared to plan(industry having high asset turn over ratio than plan). The concerned entity though utilized it's industry segment assets effectively but the overall asset utilization fell in 2108 compared to 2017. There can be three probable reasons for this fall in 2018-

• The higher margin segment(plan) did not utilized it's assets as expected.
• Low margin segment(industry) though has greater ratio but still not best ratio.
• Both of the segments did not utilize their assets at-least as effectively as it was in 2017.

99. Times Interest earned (TIE)- In finance this is also known as Interest coverage ratio which means how well an entity is positioned to cover/pay the interest (on any loan that it had taken) through it's sales/revenue. This ratio is more important from lender's perspective as it helps them make a decision about their loan given to an entity. The higher the ratio the better.

Looking at the graph it can be said that the concerned entity is in better position in 2018 than 2017 to honor  it's interest obligation on loan. This improvement can largely be attributed to plan which has higher TIE. This higher TIE can be because of overall debt level getting reduced in 2018 or substantial increase in revenue.Industry though has lower TIE but due higher contribution from Plan overall ability of the firm/entity has improved marginally.

98. Leverage Ratio- this shows company's assets and how assets are financed(through debt or equity). Total asset/Equity shows the part of assets financed through equity or owned by shareholders.

Looking at the graph it can be summarized that assets of industry is financed more through equity and less through debt vis-a-vis plan. Compared to plan, Industry has less debt against it. Compared to 2017 company has increased it's over all equity financing and reduced debt on it's balance sheet in 2018.