California Chopper Financial Ratios Essay

1478 Words Oct 30th, 2012 6 Pages
Exhibits and Data Analysis
CALIFORNIA CHOPPERS RATIO TABLE

2001 2002 2003 2004 2005 Ind.Av.
Liquidity
Current Ratio 1.37 1.48 1.64 1.33 1.04 1.25 Cash Ratio 0.19 0.20 0.31 0.25 0.15 0.27
Asset Management Inventory Turnover in Days 138.26 59.54 51.70 33.03 43.66 44.12 A/R Turnover in Days 59.16 42.69 39.28 42.69 42.30 32.45 A/P Turnover in Days 157.33 80.75 71.71 79.18 109.94 60.23 Cash Conversion Cycle 40.09 21.48 19.27 -3.46 -23.98 16.35 Fixed Assets Turnover 1.85 3.94 4.46 4.46 4.05 3.72 Total Asset Turnover 0.95 1.88 2.03 2.17 2.00 2.05
Long-term Debt Paying Ability Debt Ratio 0.93 0.84 0.73 0.64 0.65 0.54 Times Interest Earned 1.23 2.62 3.54 3.42 3.06 9.33
Profitability
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This is due to the fact that inventory and accounts receivable are left out of the equation. Based on the cash ratio, this company carries a low cash balance. This may be an indication that they are aggressively investing in assets that will provide higher returns. We need to make sure that we have enough cash to meet our obligations, but too much cash reduces the return earned by the company.
Cash ratio=(cash+ marketable securities)/current liabilities= 20.56/108.82
=0.19

Inventory turnover in days is an assistant figure of inventory turnover. The shorter of the days, the faster of the inventory turning to cash, and the better use of short-term capital. This figure of the firm was very high in 2001 and began to fell down from 2002,then lower than industry in 2004 and 2005.This indicates the management of the firm became better.
Inventory turnover=cost of goods sold/average inventories=210.45/79.66=2.64
Inventory turnover in days=365/inventory turnover=365/2.64=138.26

Generally speaking, the shorter of the A/R turnover in days, the better efficiency of current capital. But the data of this firm is higher than the industry average level, it indicates there is an inefficient use of current capital and a problem of management, especially in 2001.But it started dropping dramatically in 2002 which reflects an obviously improvement of management.
A/R turnover=net credit sales/average accounts

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