Liquidity Ratio and Profitability Ratio Report

Be Our Guest’s balance sheet shows good signs of liquidity. Current Ratios for the past four years have remained above 1 proving that the company can handle its current liabilities. The current ratios are not extremely high (19941.27, 1995- 2.17, 1996- 1.15 and 1997- 1.16), but they can cover the current liabilities. It is important to note that the company is operating on a thin line because the current assets are barely covering the current liabilities. This is particularly unpleasant because we are dealing with a company operating in a seasonal business. It is a concern that the current ratio slightly eroded after 1995, and this is primarily due to Be Our Guest converting the bank line into long term debt in

The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future

The company’s current assets are just over two times its current liabilities, giving it a current ratio of 2.08. This is a sign of financial strength. The Quick ratio (current assets-inventory then divided by current liabilities) is 0.96. This measures the company’s ability to come up with cash in a matter of hours to days. It has working capital (current assets-current liabilities) of $7,508,998. With a working capital per dollar of sales of 15%. This is adequate given the high inventory turn.

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

1) Financial performance – ability to acquire, husband, and effectively reinvest essential resources. This will show profit and cash flow; days

Liquidity—current and quick (acid test) ratios make up this group. Current ratio is total current assets divided by total current liabilities. The quick ratio formula is current assets minus inventory and prepaid expenses divided by current liabilities.

The quick ratio is a more rigorous test for the company’s ability to meet its short-term debts than current ratio because inventory was eliminated from current assets. The quick ratio for PPL indicates serious issues as it has decreased from 0.31 in 2012 to 0.07 in 2016. The low quick ratio implies that a considerable portion of the current assets of the company is tied up as part of its inventory (Bragg, 2007), which means that the lower level of quick liquidity ratio indicates a high level of financial risk. The balance sheet for PPL (PPL, 2016) revealed that, particularly in 2016, the inventory accounted for 90% of the current assets. Therefore, the company must improve its working capital to meet its near term current liabilities.

Also, according to its leverage ratios, the company’s debts are not only very high, but are also increasing. Its decreasing TIE ratio indicates that its capability to pay interests is decreasing. The company’s efficiency ratios indicate that despite the fact that its fixed assets are increasingly being utilized to generate sales during the years 1990-1991 as indicated by its increasing fixed asset turnover ratio, the decreasing total assets turnover indicate that overall the company’s total assets are not efficiently being put to use. Thus, as a whole its asset management is becoming less efficient. Last but not the least, based on its profitability ratios, the company’s ability to make profit is decreasing.

Generally, short term solvency ratios consist of measurements that are used to determine a firm’s ability to cover its short term liabilities. In other words, it provides the company with a general idea of the amount of current assets they possess compared to their current or short term liabilities. The three short term solvency ratios we will be focusing on with S&S Air are current, quick(acid test ratio), and cash ratios. These three ratios are crucial for determining a firm’s liquidity and are important factors, especially to creditors and suppliers.

Liquidity Ratios: The Pro Forma statement shows the current ratio decreasing from 1990 and 1992 to 1.75. Although current assets have increased between 1990 and 1992, current liabilities have increased even more. This is due to the significant increase in short-term bank loans and accounts payable, as described in the problem. According to this ratio, Mark X Company needs to increase its liquidity. The quick ratio shows that a huge component of Mark X’s current assets is made up of inventory which is the least liquid asset. Therefore, Mark X Company cannot cover its liabilities without its inventory since this ratio is less than one. Both of these liquidity ratios are below the industry average which putting the Mark X Company in a weak financial position.

Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.

a firm’s ability to pay its current liabilities with only quick assets (“Financial Ratio Analysis,”

They results show that the company had a net income of $32,184.07 during a three month period. After they took away their dividends, they had a retained earning amount of $ 29,184.07. The company had $66,814.07 in assets, $17,630.00 in liabilities, and $ 49,184.07 in equity. The company uses a ratio analysis to determine the company’s level of performance as it is the most reliable way to measure trends and to compare performance to other similar companies in the baking industry. Ration analysis also evaluates profitability, the ability to pay liabilities, to sell merchandise, stock as an investment. The company has a high current ratio of 3.78 which tells that we have adequate assets in order maintain normal operations. (Nobles,

The table above demonstrates the financial ratio analysis of MyToys company, the financial performance of MyToys is not doing well. The primary reason is the company is still young and intensely depend on the loan, but the sales revenue of the company is increase every year.

Managers within a firm, including the owners and lenders, need to track the firm’s performance in order to be successful. Those individuals are able to review performance through analysis of the company’s financial statements. A firm’s financial statement consists of a firm’s income statement, balance sheet, and cash flow (In/Out). Businesses use these reports to understand the financial position of the firm. The reports can also serve as a tool when making decisions on how the firm will operate in the future and where it will go (Boundless, 2015).