Question

1. What do the ratios calculated below communicate about the financial strengths and weaknesses of this company?
2. Based on your calculations, would you invest in this Company, why or why not

Projected Ratlos 12/31/17 Historical Ratios 31/16 0.95 0.56 1.18 3.79 Current Ratio Quick Ratio Total Debt-to-Total-Assets Ratio Total Debt-to-Equity Ratio Times-Interest-Earned Ratio Inventory Turnover Fixed Assets Turnover Total Assets Turnover Accounts Receivable Turnover Average Collection Period Gross Profit Margin % Operating Profit Margin % ROA % ROE % 0.83 0.50 1.24 2.43 13 9.50 0.95 0.56 1.18 3.79 Current Ratio Quick Ratio Debt-to-Total-Assets Ratio 0.60 1.20 3.19 1.01 0.69 1.19 3.81 Times-Interest-Earned Ratio Inventory Turnover Fixed Assets Turnover Total Assets Turnover Accounts Receivable Turnover Average Collection Period Gross Profit Margin % 10.00 3.50 9.90 3.40 1.37 3.70 1.10 12 1.35 12 29.60 46% 12% 9% 40% 1.37 13 28.52 42% 696 13% 77% 28.52 42% 13% 77% 28.57 46% 14% 89% 9% 45% 5% 98% 13% ROA %

Answer 1

Strength of this company :
1. Debt Servicing of the company is better because Times Interest Earned is increasing. Times interest Earned = EBIT/Interest.
2. Operating efficiency of the firm is increasing because  inventory turnover is increasing and total assets turnover .
3. Liquidity is getting better because current ratio and quick ratio are improving.
4. The return to equity holders is increasing.

Weakness of this company
1. Profitability is decreasing because of Gross Profit Margin and operating margin are decreasing.
2. The leverage in the company is increasing because of risk is increasing.


The overall strengths are better , hence investments should be done.

Please Discuss in case of Doubt

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