American Red Cross history and operations

American Red Cross complete comparative analysis of Red Cross's financial situation over the period 2003-2004 will first of all start with a calculation of the liquidity ratios. These will show the short-term solvability for the company, as well as its capacity to finance its short-term financial liabilities. We will be using the current ratio and the quick ratio as the main mean to assess the company's liquidity.

In 2004, the current ratio = current assets/current liabilities = 1,186,209/508,443 = 2.33

Following the same algorithm, in 2003, the current ratio was 2.58.

These values show that the company has no problem handling short-term liabilities and that the current ratio is much over the lower limit. Usually, negative signs appear when the current ratio is lower than 1, which is obviously not the case here. However, we may point towards the fact that the current assets are significantly greater than the current liabilities, which may show that the company could further improve its position by lowering current assets or increasing current liabilities. The margin up to 1, the lowest it can reach, is high enough to reduce the current ratio and, comparing values for 2003 and 2004, it may be the case that this is a strategy the company is currently undertaking.

The quick ratio or acid test shows the same findings with values of 1.99 in 2004 and 2.23 in 2003.

In terms of debt ratios, we will be referring to the ratio between total debts and total assets, which shows whether the company tends to use external debt or rather internal and other forms of financing in its projects.

In 2004, the debt ratio was 10.55%, while in 2003, the debt ratio was 10.34%. Constant during the period analyzed, the debt ratio and its values show the intense inclinations towards other forms of financing. Indeed, the company is clearly not inclined to appeal to debts as a significant part of its financing system.

The asset management ratios come to show the rate of efficiency with which the company is using its assets. Ratios like the inventory turnover, the fixed asset turnover or the total - assets turnover are indicators of the company's efficiency.

Inventory turnover (2004) = Net sales/Inventory = 12.5 (given the specific economic activity of the company, we have used operating revenues from products and services as the substitute for net sales). In 2003, this figure amounted for 11.79 times. Comparatively, this figure has been following an ascending trend over the past year. If we look at the actual inventory values, we will discover that the company's policy does not support high inventory values, which comes to explain the high turnover values.

Fixed - assets turnover (2004) = 0.97 times with 0.98 times in 2003. This is not necessarily a high value, but it does not necessarily mean the company is not using its fixed assets efficiently. In my opinion, it is more an indication of the specificity of the industry in which the company operates and of its own characteristics.

The total-assets turnover shows the same trends, with values of 0.62 (2004) and 0.61 in 2003.

In terms of profitability ratios, we are inclined to use the profit margin on sales indicator, as well as the return on total assets ratio, currently referred to as the return on investment ratio (ROI).

Again, de to company's specificity, we can evaluate the profit before tax as the changes in net assets from operations, from the consolidated statement of activities. However, we discover that this is a negative value both in 2003 and in 2004. Not necessarily a discomfort in this case, the negative values come to show that the company relies on investment in buildings, equipment etc. rather than in increasing its operational profits. Nevertheless, these values have shown a solid increase from those in 2003, by almost 3 times.

The financial ratios we have calculated come to show the impact the industry in which the company is operating and the company's own specificity has on the financial ratios. Operating with almost no inventory (as compared to the total assets, for example) and relying less on multiplying its immediate operational profits, the company has solid financial figures in terms of liquidity and debt management, which shows almost no inclination towards risk.