Spartech Corporation: a Financial Ratio Analysis Essays

The current ratio directly relates the company’s current assets against its current liabilities. A good current ratio will be over 1. For example if the current ratio were 2.0 this would mean that the company’s current assets are twice as large as its current liabilities. For Tesla Motors the current ratio drops significantly over the years. It starts at 2.76 in 2010, then drops to 1.95 in 2011, and finally reaches 0.97 in 2012. As you can see the current ratio in 2012 is below one. The current ratio of 0.97 means that as of December 2012, Tesla Motors has more current liabilities than current assets.

The current ratio measures the company’s ability to pay its short term obligations with its short term assets. Between Coca Cola and PepsiCo, PepsiCo has a higher current ratio implying that is more capable of paying its obligations. The debt management policies of Coca-Cola in conjunction with share repurchase program and investment activity resulted in current liabilities exceeding current assets. From the ratio Pepsi Co suddenly had to pay all its short-term

I would worry that the firm might be decreasing the size of the operations. Also the firm has relied more on debt funding in the past but the incoming cash from taking on debt is going down over the last three years; however, payments for long term debt maintains. I wonder if they are struggling to obtain new debt and are reaching their limit.

The financial performance of the company over the years six t thirteen is shown in table no 7. The data includes Revenue generated over the years, Earning per share, Return on Investment and Stock Prices. Chart 5 shows that there has been a decline in the revenues generated. Charts 6 to 8 all show a decline in Earnings per Share, Return on Equity and Stock Prices suggesting a poor financial performance by the company.

The Total Current Assets for Competition Bikes is 36.8% in year 8 up from 31.5%, showing that the company has enough funds to settle current debt. Specifically Works in Process Inventory and Raw Materials Inventory remains unchanged from year 7 to 8, this shows that even with a decrease in sales the company is slow moving and has not adjusted inventory to sales. The company has accrued more debt from year 7 to year 8 seeing an increase of Total Current Liabilities moving from 5.4% to 7.0%.

The current ratio shows the short-term debt-paying ability of the company also known as liquidity ratio. Components of the current ratio are current assets and current liabilities. To find the current ratio, divide current assets by current liabilities. For example if a current ratio was 2:1, then that company would be able to pay off its short term debt easily. But you should also look at the types of debt the company has because some assets might be larger. For the current ratio a rule of thumb is the ratio should be around 2:1. The company wants to at least make sure that the value of the current assets covers at least the amount of the short-term obligations. In 2013 the current ratio is 1.75 and in 2014 the current ratio is 1.8. This is showing a favorable

Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063.94 million at the end of FY2010, a 48.09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25.07% - from US$1,770.02 million at the end of FY2009 to US$2,213.72 million at the end of FY2010. Following this, the company’s current ratio declined from 1.27 at the end of the FY2009 to 1.07 at the end of FY2010. A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations.

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.

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

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.

As the creditors’ view, they prefer the high current ratio. The current ratio provides the best single indicator of the extent, which assets that are expected to be converted to cash fairly quickly cover the claims of short-term creditors. However, consider the current ratio from the perspective of a shareholder. A high current ratio could mean that the company has a lot of money tied up in nonproductive assets.

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.

The long-term liquidity risk ratio such as LT debt/Equity, D/E, and Total Liabilities to Total Assets all show a decline from year 2005 due to the repayment of debts. The interest coverage ratio also shows a healthy number of 29.45 in comparison to the industrial average of 15.04 indicating a high ability to pay out its interest expense. Such a low relative risk is not surprising due to the nature of its business depending heavily in R&D development and large intangible assets.

CURRENT RATIO show a company’s ability to pay its current obligations that is company’s liquidity. The current ratio position is lower for Honda at 0.33 than for Toyota at 1.22 in 2010. Honda has a large portion of receivables in assets both in trade, notes receivables and finance receivables. It has a huge portion of cash as well. This indicates the company has no problem in terms of generating a positive influx of assets. But in terms of liabilities it has a large portion of short term debt which makes almost 1/3rd of total Current liabilities. Also there is a significant portion of Long Term debt. The higher level of liabilities in the denominator reduces the overall ratio.

It’s noticeable how the company’s operations have been deteriorating as they are having a more difficult time translating sales into cash. Their A/R turnover is not where it needs to be, and in line with that, their liabilities are increasing as well. The company has also been inefficient with the use of their assets as their current activity ratios are not up to par with the industry standards.