Question

current ratio 2.292 and 2.555 (2015) quick ratio 1.55 and 1.722 (2015); accounts receivable turnover 40.76; days sales outstanding 8.83; inventory turnover ratio 11.495 times; and average days to sell inventory; 31

debt to assets ratio 0.56 debt to equity = 1.30 interest coverage ratio = 141.66, plant assets to long term disabilities = 0.36

net margin ratio 0.30; asset turnover ratio = 12.9; return on investment = 3.88; return on equity 8.92%

Answer 1

Please note the picture of Profit and loss is not clear, therefore I am unable to calculate 2014 ratio's. So, the response is provided based on the best understanding by looking at the data given.

Understanding on company's financial position:

1. Current Ratio 2.292 (2014) and 2.555 (2015) & Quick Ratio 1.55 (2014) and 1.722 (2015): Current ratio and Quick ratio helps in understanding whether the company will be able to repay its short term debt's if required immediately. Since the current ratio and quick ratio have improved from 2014 to 2015, this indicates that the company's short term repayment situation has improved

2. Accounts receivable turnover 40.76 & days sales outstanding 8.83: Accounts receivable ratio is calculated by dividing credit sales/accounts receivable. Higher turnover ratio indicates higher frequency to convert receivables into cash.

Similarly, day sales outstanding represents the same information in terms of number of days in a year. The formula for the same is (number of days in a year/ average receivable turnover). In the present case 8.83 represents that it takes 8.83 days for company to convert receivable into cash. This is overall an indication of quick recovery. Hence the company's condition is good in this aspect also

3. Inventory turnover ratio 11.495 times; and average days to sell inventory 31: Inventory turnover ratio and average days to sell inventory indicates how much time it takes to replenish the sold inventory back in stock. In the present case, the inventory has been refilled 11.495 times to bring it back to the original levels. Average days to sell inventory denotes how much time it takes to convert raw material into finished products.

4. Debt to assets ratio 0.56 and Debt to equity = 1.30 : Ideally debt to equity of 2:1 is considered to be good. Debt to equity ratio denotes the long term solvency of the company. How capable a company is to pay off all its long term debt. Where debt to equity ratio is more than 2, it indicates that the company is over leveraged with more debt in it. Since in the present case, debt to equity ratio is less than 2:1, therefore the company has risk taking appetite and its long term solvency is also good.

5. Interest coverage ratio = 141.66 : This denotes how well the company is covered and able to repay finance cost arising on the debt.

6. Return on equity 8.92%: It is derived by dividing (net income/shareholder's equity). Higher the ratio, better it is. We need to calculate 2014 return on equity as well to estimate if it has improved.

7. Net margin ratio 0.30; and return on investment = 3.88: This indicates how much return is earned on the investments made and what is the net margin earned by the company. Higher the ratio, better it is.

Overall, on looking at the financial figures, it appears that the company's financial position has improved in 2015 and is moving in right direction.