Question

Calculate for Movit Manufacturing in Problem 1 the financial ratios listed in the table below. Using these ratios and those provided for 2014 and 2015, conduct a short analysis of Movit’s financial health.

Movit's Financial Ratios	2015	2014
Current Ratio	1.90	1.60
Acid test	0.90	0.75
Equity Ratio	0.40	0.55
Inventory Turns	7.00	12.00
Return on Assets Ratio	8%	10%
Return on Equity Ratio	20%	18%

Answer 1

Current ratio

Current ratio is the most every now and again utilized ratio to gauge organization's liquidity as it is speedy, natural and simple measure to comprehend the connection between the current resources and current liabilities. It essentially responds to this inquiry "What number of dollars in current resources does the organization need to cover each $ of current liabilities"

In given case, current ration has been improved from 1.4 to 1.9. which means now company is in better liquid position.

Acid Test

Some of the time current resources may contain tremendous measures of stock, prepaid costs and so forth. This may skew the current ratio understandings as these are not exceptionally fluid. To address this issue, in the event that we consider the main most fluid resources like Cash and Cash reciprocals and Receivables, at that point it ought to furnish us with a superior picture on the inclusion of transient commitments. This ratio is know as Quick Ratio or the Acid Test.

In given case, quick ratio is also improved from .75 to .90. Which means current ratio of company is no deceptive. Company do not have huge inventory or prepaid expenses.

Equity Ratio

Equity ratio represents the part of equity shareholders in the total capital of company.

In the given case, ratio of equity is decreased to 0.40 from 0.55. Which means company raise debt from the market to enchance the business of the comapny.

Inventory turnover

Inventory Ratio implies how often the inventories are reestablished amid the year. It tends to be determined by taking Cost of Goods Sold and separating by Inventory.Inventory Turnover Formula = Cost of Goods Sold/Inventory.

In given case, ratio is decreased from 12 to 7. This is not a good position of company. Company should give more attention towards inventory management.

Return on assets

Profit for Assets or Return on Total Assets identifies with the company's income to all capital put resources into the business.

In given case, ROA decreased from 10% to 8%. Now company is earning lesser return compared to last year on capital invested in the business.

Return on Equiity

Profit for Total Equity implies the rate of profit earned for the Total Equity of the firm. Can be thought of dollar benefits an organization creates on every dollar venture of Total Equity

Return to equity shareholders improved from last year.