The biggest change in Abbott’s balance sheet can be seen in the composition of its asset accounts. In 2006, % of the firm’s assets were current, while 69% were of the long-term variety. In 2010, however, the portion of current assets increased by 7%. This increase in current assets is most visible in cash and short-term investments (4% in 2006 to 9% in 2010) and corresponds with a higher level of uncertainty in today’s economy. The fact that Abbott Laboratories has chosen to increase the value of liquid assets on its balance sheet indicates low returns on long-term investments and a preference of keeping cash on hand rather than reinvesting in the business.
The liabilities section of Abbott’s balance sheet does not …show more content…
The firm’s accounts receivable ratio increased from 68.71 in 2006 to 74.56 in 2010. This means that it is taking Abbott almost six days longer to collect from its customers today than it did five years ago. Furthermore, the firm’s accounts payable days has decreased from 43.72 in 2006 to 38.22 in 2010. This means that Abbott is paying its suppliers 5½ days earlier today than it did in 2006. A change in the inventory ratio from 8.01 in 2006 to 11.03 in 2010 indicates that it is taking the firm longer to sell finished goods than it used to. The increase in the accounts receivable and inventory ratios, combined with a decrease in the accounts payable ratio, indicates poor working capital management and helps to explain why the firm has increased its holdings of cash and short-term investments. To correct this, Abbott’s managers should focus on collecting cash from its customers faster and delaying payments to its suppliers. To maximize its cash position, the firm would be best served by paying its suppliers in the same amount of time as it collects payment from its customers.
Abbott’s fixed asset and total asset turnover ratios can tell us how well the firm uses its assets to generate revenue. The fixed asset ratio provides the proportion of sales to fixed assets and tells us how much revenue is
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Woolworths has shown increasing inventory turnover from 10.88x in 2011 to 10.97x in 2012. Generally, the higher the inventory turnover, the better the liquidity. The lower ratio in 2011 implies poorer sales since the cost of sales in is $39,050.00M, lower than $40,792.40M in 2012. However, the improvement in inventory turnover may indicate ineffective buying – Woolworths buys too often in small quantities, with higher buying price.
These ratios will help us see how effective a company is at using their sales or assets and turning this into income.
The Company had $1.55 of current assets to repay each $1 in liabilities in 2014, dropping to $0.94 per $1 in 2015 respectively. The decrease in current ratio occurred due to the decrease in current assets and increase in current liabilities from 2014 to 2015. It is important to recognize that in 2015, SCC did not have enough current assets to pay for its current liabilities. The note of financial statements attributed this to the increase in trades payable and accrued expenses from the expansion plan of SCC, leading to
The Lawsons’ efficiency ratios are another section the bank will find troubling. The company’s age of payables has nearly tripled over the last four years. This can be detrimental to the company’s image and reliability including their reliability toward the bank if granted the loan. Along with increasing age of payables is increasing age of receivables and age of inventory. Indicating that Mr. Mackay is taking longer to collect his receivables and that he has purchased too much inventory. Too much inventory results can result in further issues
With slow sales, the company had to keep some expenses flat, such as administrative salaries, web creation / maintenance and executive compensations. This is a weakness and as stated before, the company will need to increase sales to increase profits to raise its strength. On the balance sheet for years 7 and 8, the current assets increased in accounts receivables. This is probably due to slow pay and/or unpaid accounts receivables. The change between years 7 and 8 reported -15% with a decrease change of $107,640. Total assets change was -0.2% and this position reflects a financial weakness for the company. Cash and cash equivalents can be used to satisfy during this period, although there was a change of 348.2%, this increase could have been used for operating expenses. This is too much cash sitting idle and not working for the company. Competition Bikes can assess where to put this cash to work for the company.
The Asset turnover Ratio (ATR) displays how well a business can use its assets in generating sales or revenue. A higher ATR is better as it demonstrates the amount of dollars generated by one dollar of the
Riodan’s Inventory accounts for a large share of its current assets (54%). On the surface this may represent a weakness however the company has an inventory turn of 5.35 (cost of goods sold annually/inventory) which means the company goes though its inventory 5.35 times per year or every 68 days. Riodan’s products are not perishable and enjoy a very long shelf life so this turnover rate of relatively good. This relatively high turnover rate allows for it to maintain relatively low cash balances as it can raise cash quickly from sale of inventory. This is reflected in the high balance of the accounts receivable.
Lenders or suppliers would be interested in the liquidity ratio because the company’s likelihood to pay off short-term debt is obvious. The profit of the company determines the potential impending success and would be important to creditors and investors. The solvency ratios show if the company will continue to grow and stockholders or financial analysts would be interested in these ratios. Asset Turnover is the amount of sales or revenues produced per dollar of assets. The Asset Turnover ratio is a gauge of the productivity in which a company is using its assets. The number of times is calculated by the net sales divided by the average assets. Usually, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets ("Investopedia", 2014). The asset turnover ratio tends to be higher for companies in a sector like consumer staples, which has a relatively small asset base but high sales volume. On the other hand, companies in areas like utilities and broadcastings, which have large asset bases, will have lower asset turnover. Kudler Fine Foods asset turnover ratio shows that from 2002 to 2003 there was not much of an increase. However, the percent does improve at a .3% increase from year to year. A profit margin is a ratio of profitability calculated as net income divided by revenues, or net profits divided by sales ("Investopedia", 2014). It measures how much out of every dollar of sales a
First, the inventory account increased from 35.47% of total assets in 1996 to 58.01% in 1998, which was uncharacteristically large. Second, the cash accounts and marketable securities decreased significantly. Finally, long term debt increased enormously over the three years. These items are major red flags for business operations.
Afterwards, the firm’s revenue began to increase steadily, peaking in the fourth quarter in 1988 at $25,131,000.00. However, when going from the last quarter in 1988 to the first quarter in 2000 we can see a 23% decrease in revenue ending at $19,348.00 which is more than likely a sign that the peak could have been due to a high point in the year from holiday shopping, for example. The company’s Account Receivables, like it’s gross margins, are at it’s lowest in the first quarter of each year. In 1997 in the first quarter the company’s Account Receivables were at $30,857,000.00 which indicates a significant decrease in sales. It was not surprising to see that the point of the company’s highest Account Receivables was in the fourth quarter of 1999 at $37,324,000.00. Due to the fact that the Accounts Receivables were rising and declining linearly in comparison to sales, we can assume that clients were paying off invoices appropriately and that the difference was mainly influenced by the increase or decrease in company sales. IBM’s gross margins were at it’s lowest in the first fiscal quarter of1988 at $6,450,000.00 before increasing to 34% to $9,809,000.00 by the fourth quarter of the same year. The constant slight shifting of gross margins per quarter indicates stability and a positive outlook for the company.
The sales in the day for inventory are high and the inventory turnover ratio is lower than the industry. Garner’s Platoon inventory is not turning over as fast as they planned, which is not letting them cut cost for storage; which is what Garner’s Platoon is trying to achieve. The account receivable management ratio shows a collection period for 9 days lower than its industry average. The turnover ratio is 4.49, which shows that management is doing a great job, and also shows that the company has a well-organized collecting system.
Problem StatementInadequate Working Capital • Stagnant growth: It becomes difficult for the company to take advantage of new opportunities or develop new products or adapt to alteration of production techniques needed when new opportunities arise. • Loss of credit opportunity: The inadequacy of working capital funds make firms unable to secure attractive credit opportunities. A company with working capital need not seek for credit opportunities because the firm will be able to finance large stock and can therefore place large orders. • Loss of cash discount: Companies try to persuade their debtors to pay early by offering them a cash discount off the actual price. A company with inadequate working capital funds will not be able to enjoy this benefit. • Loss of goodwill: A company with good reputation can expect cooperation from the trade creditors at the time of financial difficulties. A firm will lose its reputation when it is not in position to honor its short-term obligations. As a result, the firm faces tight credit