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To: CEO of Company G
Date 9/04/2015
RE: Ratio Trend Analysis for Company G
The company has weak current ratio compared to industrial average current ratio of 3.1 of the first quartile, 2.1 of the second quartile but it is higher than 1.4 industrial ratio of the third quartile. The liquidity of the company reduced slightly between 2011 and 2012 with current ratio reducing as indicated by current ratio, which reduced from 1.86 to 1.77.
The acid test ratio of 0.43 was weak and represented a reduction from 0.64 of 2011. The industrial quick ratio is 0.9 in the second quartile, 1.6 in the first and 0.6 in the third. This shows that the company has a very low ability of meeting its short-term debts when they fall due using the most liquid assets compared to the industry.
The company inventory turnover ratio indicates that it is selling slowly and therefore has purchasing inefficiency compared to industry that has inventory turnover of 10.2 in the second quartile. The efficiency reduced from 2011 to 2012 with inventory turnover ratio reducing from 6.1 in 2011 to 5.2 in 2012.
The accounting receivable of the company is weak. It indicates the company has a long time between selling and collecting cash. The accounts turnover ratio receivables turned 30.7 times in 2012 compared to 32.2 in 2011 and 33.5 of the industry in the second quartile.
The day’s sale receivable was 11.9 days in 2012 down from 11.1 days in 2011 and is strong indicator. The number of days it took to receive money on sales made on credit decreased between the two years but it is better than 13.5 of the industry in the second quartile, 15.1 in the first quartile and but poor than 11.3 of the third quartile.
The debt ratio of 29.76% indicates a strong capital structure. Heavy reliance on debt increase company’s obligations and the company has a lower debt ratio compared to 45.0% of the industry (in the second quartile) although its debt increased between the two years from 28.34% in 2011 to 29.76% in 2011…………………..