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Ratio and Financial Analysis of Computron
Ratio analysis is the overall numerical values of an organization collected from income statements and balance sheets of a company to evaluate its financial performances. Investors, creditors, and potential shareholders used the ratios to evaluate the financial performances and financial health of a company. The management can also use the ratios to analyze the organizational performances. Profitability ratio, current ratios and efficiency ratios are the three groups of ratios used to evaluate organizational financial performances. Profitability ratios measure the ability of a company to turn its assets into profitability. The current ratios measure the ability of a company in using its current assets to meet its short-term obligations. Efficiency ratios reveals the ability of a company to utilize its inventory or assets efficiently.
b. This section calculates the company current ratio and quick ratios.
Current ratio =Current Asset/Current Liabilities
Current ratio = $2,680,112 / $1,039,800 = 2.6
Quick Ratios = (Current Asset -- Inventories) / Current Liabilities
Quick = $2,680,112 / ($1,039,800 -1,715,480 = 0.9
Table 1: Computron's Ratios
2014
2014
Current assets
2680112
Current Liabilities
1039800
Inventories
1716480
Account Receivables
878000
Current Ratios
2.577526
Quick Ratios
0.926747
Total Assets
3516952
Sales
7035600
Net Fixed Asset
836840
Inventory Turnover
4.098853
Days Sales Outstanding
45.54978
Fixed Asset Turnover
8.407342
Total Asset Turnover
2.000482
In 2012, the company current ratio was 2.3 and deceased to 1.5 in 2013. However, the company quick ratio was 0.8 in 2012 and decreased to 0.5 in 2013. The results revealed that company liquidity position was better in 2012 than its liquidity position in 2013. In the projected...
The 2014 projection ratios reveal that the company financial position is good because it has enough liquidity to settle its current liabilities since its current ratio is more than 2.57. The quick ratio is fair because the quick ratio is very close to 1 revealing that the company can settle its current liabilities without its inventories.
Similar other ratios, the liquidity ratios also assist management to evaluate the liquidity position of the company in order to carry out an effective management planning if the company is facing a liquidity problem. Moreover, the liquidity ratio can assist investors and creditors to make an investment or credit decisions about the company.
c. Inventory turnover = Sales / Inventory
Inventory turnover = $7,035,600 / $1,716,480
Inventory Turnover =4.1
Days Outstanding Sales = (Account Receivables / (Annual Sales / 365 days)
Days Outstanding = $878,000 / ($7,035,600 / 360)
Days Outstanding = 44.9 Days
Fixed assets turnover = Sales / Net fixed assets
Fixed assets turnover = $7,035,600 / $836,840
Fixed assets turnover = 8.4
Total assets turnover = Sales / Total assets
Total assets turnover = $7,035,600 / $3,516,952
Total Assets= 2.0.
Computron's inventory ratio declines within the past three years, and is below the industry average. It shows that the company is unable to replenish the new stock and move older inventory from the stock. However, the company Days Outstanding Sales have increased steadily and are above the industry average revealing that the company is weak in its collection efforts. However, fixed asset turnover is above average, and the total asset turnover is below industry average revealing that the company has not effectively manage its assets.
D.
Debt ratio = Total debt / Total assets
Debt ratio = ($1,039,800.00 + $500,000.00) / $3,516,952.00
Debt Ratio= 43.8%
Times Interest Earned = EBIT /…
Reference
Williams, J.R. Susan F.H. Mark, S. B et al. (2008). Financial & Managerial Accounting. McGraw-Hill Irwin.
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