Ratio Analysis
1. Liquidity Ratios
– Measure the ability of a company to repay its short-term debts and meet unexpected cash
needs.
a) Current Ratio
– Measure the ability of a company to pay its current obligations using current assets.
Based on the above calculation it appears that the company has more current assets than
current liabilities. This means that the company provides 1.05 current assets for repayment.
Balance of reimbursement is 0.05 when 1.00 current liabilities claimed.
b) Quick Ratio
– Measures the liquidity of a business by matching its cash and near cash current assets
with its total liabilities. It helps us to determine whether a business would be able to pay
off all its debts by using its most liquid assets (i.e. cash, marketable securities and accounts
receivable).
=
= 0.6226
Based on the above calculations, quick ratio is less than 1.00 which means the amount of
assets that can be drawn is less than current liabilities. These ratios are moderately poor
liquidity without relying on inventories.
2. Turnover Ratio/ Asset Management
– How efficiently are you utilizing your assets and managing your liabilities? These ratios
are used to compare performance over multiple periods.
a) Receivable Turnover Ratio
– Measure the number of times in an operating cycle (normally one year) the company
collects its receivable balance.
= 40.90 days.
Based on the above calculation, the company took 40.90 days to collect accounts
receivable. These companies have to meet the liabilities of the company from time to time
by cash.
b) Inventory Turnover Ratio
– Measure the number of times you turn inventory over into sales during the year or how
many days it takes to sell inventory.
= 10.42 times
Based on the calculation above, the company have higher inventory turnover. A high ratio
means the sale’s of the company increase. Ratio of inventory turnover for the year is 10.42
times. In other words, inventory held for 10.42 days before the sale.
c) Fixed Asset Turnover Ratio
– Measuring the extent to which fixed assets a firm can help generate income.
=
= 2.1204 times
The calculation above shows the company has fixed asset turnover of 2.12 times. This
means every 1.00 of fixed asset 2.12 of sales can be generate.
d) Total asset turnover
– Measure the ability of a company to use its assets to efficiently generate sales. This ratio
