Question

Based on the information given for the ratios for 2010 and 2009:

a. Has liquidity position improved or worsened? Explain.
b. Has the company's ability to manage its assets improved or worsened? Explain.
c. How has the company's profitability changed during the last year?

Ratio Analysis			2010	2009	Industry Avg
Liquidity Ratios
Current Ratio			2.44	2.52	2.58
Quick Ratio			0.58	0.65	1.53
Asset Management Ratios
Inventory Turnover			5.00	7.14	7.69
Days Sales Outstanding			45.63	43.80	47.45
Fixed Assets Turnover			1.92	2.00	2.04
Total Assets Turnover			1.11	1.22	1.23
Debt Management Ratios
Debt Ratio			35.2%	33.2%	32.1%
Times-interest-earned ratio			12.67	13.90	15.33
EBITDA coverage ratio			4.37	4.09	4.18
Profitability Ratios
Profit Margin			9.57%	8.63%	8.86%
Basic Earning Power			19.16%	18.95%	19.48%
Return on Assets			10.59%	10.55%	10.93%
Return on Equity			16.35%	15.80%	16.10%
Market Value Ratios
Earnings per share			$9.92	$8.63	NA
Price-to-earnings ratio			9.07	11.12	10.65
Cash flow per share			$14.77	$13.13	NA
Price-to-cash flow ratio			6.09	7.31	7.11
Book Value per share			$60.68	$54.61	NA
Market-to-book ratio			1.48	1.76	1.72

Answer 1

(a): Current Ratio and Quick Ratio are the metrics that measure liquidity of a firm. It is noted that both these ratios have marginally declined in 2010 from the level of 2009. Current ratio has declined from 2.52 times to 2.44 times over this period. Quick ratio has declined from 0.65 to 0.58

(b): Assets turn over has worsened during this period. This is visible in the case of both current assets and fixed assets. Inventory turn over has declined substantially, from 7.14 times to 5 times. Days sales outstanding has worsened from 43.8 to 45.63. Fixed assets turn over has declined from 2 to 1.92 and the total assets turn over, from 1.22 to 1.11

(c): Profitability has improved. Profit margin has improved from 8.63% to 9.57%. Return on assets has slightly improved from 10.55% to 10.59% and Return on equity has considerably improved from 15.80% to 16.35%