Garners Platoon Mental Health Care Mini Case

1072 WordsFeb 14, 20115 Pages
MINI CASE P. 105-106 Garners Platoon Mental Health Care, Inc. Liquidity Ratios The liquidity ratios of the firm are slightly below the industry averages. This is due to inventory and accounts receivable making up a significantly larger portion of the current assets than cash and marketable securities. This may be indicative of a problem with inventory management and/or collection on accounts. Asset Management Ratios With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and…show more content…
Next is Asset turnover with .55 times which is a measure of the efficiency of asset utilization. Finally the equity multiplier with 2.26 which is a measure of financial leverage of the firm. When compared to the traditional ratios we get similar results; Profit margin 25.44% (27% DuPont) versus 18.75% industry average. Asset turnover is .54 (.55 DuPont) versus .50 industry average. Equity multiplier 2.28 times (2.26 times DuPont) versus 2 times industry average. The results show that the DuPont analysis using ROE as the main determinant are very similar to the regular ratios. Furthermore the ROE of the traditional ratio is 31.32% with DuPont being 33.10% versus the industry average of 18.75% shows that the firms ROE is very robust. While the firm has some challenges with respect to liquidity and inventory management, as well as debt management it still is doing a good job with respect to its shareholders. However it could be doing a little better for the stockholders, and needs to address some of the above issues mentioned. Garners’ Platoon Mental Health Care, Inc. Ratio Garners’ Industry Analysis Current Ratio 1.6 times 2.0 times Low Quick Ratio .74 times 1.2 times Low Cash Ratio .20 times .25 times Low Inventory Turnover Ratio 1.35 times 2.5 times Low Days’ Sales in Inventory 271 days 146 days Poor Average collection period 82 days 91 days OK Average payment period

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