Question

based on the financial ratios and growth rates explain in detail the financial situation of this company

Financial Ratios Cash & Short Term Investments Growth Cash & ST Investments/Total Assets Accounts Receivable Growth Accounts Receivable Turnover Assets - Total - Growth Asset Turnover Return On Average Assets Accounts Payable Growth Current Ratio Quick Ratio Cash Ratio Total Liabilities/Total Assets Common Equity / Total Assets -5.46% 4.72% 9.46% 1.32 4.76% 0.14 8.55% -67.82% 1.28 1.26 0.23 69.09% 30.65%

Answer 1

Cash and short term investments growth stands at -5.46% and this indicates declining position of the company’s highly liquid assets. The 9.46% increase in accounts receivable combined with 67.82% fall in accounts payable augurs well for the company in terms of its short term solvency as this combination will lead to increased levels of current ratio and quick ratio. ROA stands at 8.55% and this indicates that the company is reasonably profitable.

An area of concern for the company is the high use of debt. It can be said that the company is highly leveraged as its total liabilities/total assets is 69.09%. This is also known as the debt ratio and it means that the company finances around 69% of all its assets using debt. Thus equity finances merely 30.65% of the company’s total assets. Use of high leverage has risks involved with itself and the company should look at ways to reduce its debt in future.