2. a) How do the ratios that you calculated for this year compare to those that Ivey calculated for the company last year?
b) What factors from the case are most likely to account for those changes?
Ratio |
Current Year |
Last Year |
Percent Variation |
||
Liquidity Ratios |
|||||
Current ratio |
2.01 |
1.86 |
8.1% |
||
Quick ratio |
1.07 |
||||
Leverage Ratios |
|||||
Debt ratio |
0.64 |
||||
Debt-to-Net-Worth ratio |
1.71 |
||||
Times-Interest-Earned ratio |
2.49 |
||||
Operating Ratios |
|||||
Average Inventory Turnover Ratio |
4.75 |
||||
Average Collection Period Ratio |
34.60 |
||||
Average Payable Period Ratio |
31.10 |
||||
Net-Sales-to-Total-Assets Ratio |
2.17 |
||||
Profitability Ratios |
|||||
Net-Profit-on-Sales Ratio |
7.40% |
||||
Net-Profit -to-Assets Ratio |
9.20% |
||||
Net-Profit-to-Equity Ratio |
29.21 |
2. RATIO James
Confectioners
Current Last Percent
Year Year Variation
Liquidity Ratios
Current Ratio 2.01 1.86 8.1%
Quick Ratio 1.16 1.07 8.4%
Leverage Ratios
Debt Ratio 0.62 0.64 -3.1%
Debt-to-Net Worth Ratio 1.60 1.71 -6.4%
Times Interest Earned Ratio 2.38 2.49 -4.4%
Operating Ratios
Average Inventory Turnover Ratio 4.39 4.75 -7.6%
Average Collection Period Ratio 47.6 34.6 37.6%
Average Payable Period Ratio 34.4 31.1 10.6%
Net Sales to Total Assets Ratio 1.93 2.17 -11.1%
Profitability Ratios
Net Profit on Sales Ratio 4.24% 7.40% -42.7%
Net Profit to Assets Ratio 8.20% 9.20% -10.9%
Net Profit to Equity Ratio 21.29% 29.21% -27.1%
The ratio comparisons reveal the following:
Liquidity
·The Current Ratio is above last year by 8.1%.
·The Quick Ratio has improved from last year by 8.4%.
Leverage Ratios
·The Debt Ratio is slightly lower than last year by -3.1%.
·The Debt-to-Net Worth Ratio is less than last year by -6.4%.
·The Times Interest Earned Ratio is slightly less than last year by -4.4%.
Operating Ratios
·The Average Inventory Turnover Ratio is less than last year by -7.6%.
·The Average Collection Period Ratio is up from 34.6 last year to 47.6, an increase of 37.6%. This is a significant concern.
·The Average Payable Period Ratio is up from last year by 10.6.
·Net Sales to Total Assets Ratio is down from last year by -11.1%.
Profitability Ratios
·Net Profit on Sales Ratio is down from last year by -42.7%.
·Net Profit to Assets Ratio is slightly down from last year by -10.9%.
·Net Profit to Equity Ratio is down from last year -27.1%.
Downward trends from last year’s performance exist in the areas of leverage, operations, and profitability. The increase in the cost of goods is one of the primary reasons. Another significant concern is an increase in the collection period. Customers are taking longer to pay accounts receivable. This is creating cash flow problems and is having a negative impact on profitability. In addition, the ratios suggest that there are additional current assets on hand, probably inventory, and it will be valuable to monitor and improve inventory turnover.
Liquidity, however, shows a positive trend and continues to be relatively strong.
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