Question

Ratio Sustainable Technologies Comparison to Industry Example: Current ratio .7418 Less than median. Quick ratio 0.3900 Less than the median Cash ratio 0.1496 Less than the median. Total asset turnover 2.014 Inventory turnover 27.34 More than the upper quartile More than the upper quartile More than the upper quartile Receivables turnover 54.915 0.7477 Less than the median Debt-to-equity ratio Equity multiplier 1.748 Less than the median Times interest earned 6.365 Less than the median Cash coverage 9.227 Less than the median Profit margin 0.0664 or 6.64% Return on Assets 0.1337 or 13.37% Less than the upper quartile More than the upper quartile Less than the upper quartile Return on Equity 0.2336 or 23.37 % Page 3 of 4

Answer 1

2.

Liquidity Ratios

Current Ratio                            .7418                            Less than Median

Quick Ratio                                .3900                            Less than upper quartile

a current ratio of the company is found to be below the median of 1.43. This ratio shows the ability of the company to generate cash to meet the short term obligations. A decrease would mean reduced ability to generate cash. This indicates that the company could be at a higher risk due to liquidity concerns. Hence the company might be viewed with negative bias.

b. Quick ratio indicates a company’s ability to pay off current liabilities without liquidating its inventory.In the given case, this ratio is just above median and below the upper quartile. The company may not have enough liquid assets to pay off current liabilities. Necessary steps have to be taken to ensure better liquidity to service the short term fund requirement. The company will be viewed with a cautious outlook with a positive bias.

3.

Asset Management Ratios

Total Asset Turnover              2.014                        More than upper quartile

Inventory Turnover                27.34                        More than upper quartile

Receivable Turnover 54.915 More than upper quartile

a.Total asset turnover indicates the efficiency with which the company is deploying its assets to generate revenue. In the given case the company has a high turnover ratio which indicates that the company performance is good and there a higher revenue generation out of its assets. The view will be positive based on this ratio.

b. Inventory turnover ratio indicates how quick the inventory churns. A higher inventory turnover ratio indicates the company is selling goods quickly. In the given case, since the ratio is more than the upper quartile it indicates a very positive sign. Based on the this ratio the outlook will be positive.

c. Receivables turnover indicates how efficiently the company collects it s receivables. A high receivable turnover shows that the collection of accounts receivables is efficient. This also means that the company may have quality customers. In the given case the ratio is more than the upper quartile and hance the view would be positive.

4.

Debt to Equity Ratio                .7477                            Less than Median

A low debt equity ratio indicates lower amount of financing by way of debt. In the given case this rato is below the median which might be an indication that the company might be over reliant on equity to finance which could be costly and inefficient. Hence a balance is required to maintain so the ratio is neither too high or too low. The company could be viewed with negative bias with respect to this ratio.

Equity Multiplier                             1.748                         Less than median

This ratio indicates how much of company’s assets are financed by shareholders equity. A low multiplier is an indication that the company is using more of its equity and less of debt for financing its assets. This also that such companies are less dependent on debt financing which is a good financial indicator. Since the ratio in the given case is below median the view would be positive.

5

Times Interest earned                        6.365                      Less than median

Interest earned ratio indicates the amount of earnings availability to make interest payments. A lower ratio means lesser earnings availability to meet the interest outflow. Failing to meet interest obligations could force company’s to bankruptcy. In the given case the ratio is below median and the view would be negative.

Cash coverage ratio                            9.227                     Less than median

This ratio indicates greater ability of the company to meet its financial obligations. These ratios are normally used by the lenders/creditors of the company. In the given case, the ratio is lower than the median which means the ability of the company could be lower to meet its obligations. Hence the view would be negative.

6

Profit Margin                          6.64%                              Less than upper quartile

This ratio indicates the profit percentage generated in its operations. In effective cost structures and ineffective pricing models may push this ratio to lower levels. In the given case the ratio is above the median and below the upper quartile. The company can take measures to improve margins by increasing efficiencies in operations. Based on the ratio the view would be positive with cautious outlook.

Return on Equity                23.37%                               Less than upper quartile

This ratio indicates how the company reinvests the return generated into assets. A low return indicates that the company might be re investing in non productive assets. Excessive debt and minimum equity may make the return look artificially higher. It also shows inefficiencies in creating profit. Higher ratio is always better than lower ratios since it shows to shareholders how efficiently the company is using investors funds to generate returns. In the give case, the view could be positive though the company can take measures to improve the return by improving effificiences.

Return on Assets                      0. 1337                   More than upper quartile

Return on Assets indicates the increase in profits with corresponding increase in each dollar increase in investment or spend. When the ROA increases either the net income is increasing or average total assets are decreasing . A company can achieve a high ROA either by increasing profit margins or by efficiently using its assets. In the given case the ROA is above the upper quartile and hance positive.