Question

Analyze the financial performance of A&G Corporation relative to the industry. The following table shows the selected ratios of A&G Corporation and its industry median: (15 marks)

   A&G   Industry Median
Current ratio   0.75   1.43
Quick ratio   0.39   0.38
Total asset turnover   1.67   0.85
Inventory turnover   21.43   6.15
Receivables turnover   43.05   9.82
Debt ratio   0.45   0.52
Profit margin   5.04%   6.98%
Return on assets   8.40%   10.53%
Return on equity   15.27%   16.54%

Answer 1

Current ratio Quick ratio Total asset turnover Inventory turnover Receivables turnover Debt ratio Profit margin Return on assets Return on equity A&G 0.75 0.39 1.67 21.43 43.05 0.45 5.04 8.4 Industry Median 1.43 0.38 0.85 6.15 9.82 0.52 6.98 10.53 16,54 15.27 The profitability performance of A&G seems to be below the industry median performance. Its return on equity as well as return on assets is less than industry median performance. Its current ratio is far below the industry median current ratio but its quick ratio is slightly better, that seems it is holding cash slightly more than industry median. Its debt ratio is low with industry, it is employing low leverage, one reason for low return on equity can be this. The company profit margin is also less than the median profit margin of the industry. Total asset turnover is high showing that the company is better able to use its fixed asset to generate sales than its industry peers. The efficiency ratios of the company are also very high comparative to the industry median. Its inventory turnover is far more than the industry as well as the receivable turnover. The company is using its assets efficiently.