HP Ratios in the Past

HP Ratios

In the past three years, HP has seen its financial performance fluctuate. The current ratio, which is indicative of the company's solvency, measures the current assets to the current liabilities. This provides an indication of the firm's ability to meet its obligations for the coming year. HP's current ratio last year was 1.10, down from 1.22 the previous year but up from 0.98 two years ago. The figure itself is an average number, indicating neither any particular strength nor weakness. The company is in general able to meet its obligations for the next year, however, based on this current ratio.

The debt ratio for HP last year was 0.67; for the previous year it was 0.64 and for the year after that it was 0.65. The company's debt load has not varied much over the past three years, but it did increase last year substantially. However, there was also an improvement in assets in that time as well. All told, the debt ratio did not increase too significantly despite this, which indicates that the company has kept its borrowing within a range that it can afford. The impact of the economic downturn is hitting HP with this increase in debt. While the company was still profitable and growing, all of the growth came through debt rather than equity. It is important, however, to distinguish between a one-year debt increase, one relating to the business cycle or one that reflects a general and unsustainable trend. It is unknown at this time, since the increase just happened in the past year, whether this increase in debt is cause for concern with respect to the company's finances.

Return on equity was 21.64% last year. It was 18.9% in 2009 and in 2008 it was 21.3%. These figures indicate that the company has actually rebounded financially in the past year. A profit was made, and it was better in terms of its return on equity than the previous year. The return to form mirrored somewhat the bounceback in the current ratio last year. However, it is worth considering that the return on equity increased only because earnings did -- equity did not increase as it should have. Had the increase in profits been financed in part by debt rather than entirely by debt, the ROE would not have rebounded as it did last year.

Days receivable is an indicator that highlights the ability of the firm to collect on the debts owed to it by the customers. For HP, the days receivable for last year was 62; for the year previous it was 61 and for the year before that it was 90.5. What this indicates is that for the past two years, HP has improved its days receivable considerably. Two years ago, it had a very high level of accounts receivable and over the course of the past two years has taken steps to rein that in. This has helped the company's bottom line last year. While the new figure is much better than the one from two years ago, it remains relatively high and provides HP with an area in which it can improve its financial performance going forward.