Question

Financial ratio data is listed below for Crazy A Co. Construct a list of strengths and weaknesses for the firm (Show your analysis).

Crazy A Co.
Ratio	Industry	2017	2016	2015
Current	1.20	1.10	1.20	1.35
Fixed Asset Turnover	11.30	8.84	8.89	8.95
Total Asset Turnover	2.50	2.20	2.27	2.42
Debt Ratio	75.10%	78.47%	76.04%	70.17%
Times Interest Earned	2.40	1.72	2.00	2.23
Gross Profit Margin	23.10%	21.21%	22.39%	23.52%
Operating Profit Margin	2.00%	3.05%	2.86%	2.52%
Net Profit Margin	1.10%	0.89%	1.00%	0.97%
Return on Investment	2.75%	1.97%	2.28%	2.35%
Return on Equity	9.04%	9.14%	9.01%	7.88%

Answer 1

Strengths

- the company has better management and control over operating expenses as its operating profit margin is higher than industry average and over and above it shows increasing trend over the period of three years.

- the company is effectively is utilizing the shareholders' funds as its return on equity is is higher than industry average and over and above it shows increasing trend over the period of three years.

Weakness

- the company may face the problem of liquidity crunches in near future as its current ratio is lower than industry average and over and above it shows decreasing trend over the period of three years.

- it has failed to make effective management and utilization of fixed as well as total assets as its fixed asset turnover and total asset turnover are than industry average and over and above they show decreasing trend over the period of three years.

- it is highly dependent on debt and external funds and so it carries financial and solvency risk. this is presented by debt ratio which is higher than industry average and over and above it shows increasing trend over the period of three years.

- the decreasing trend of gross profit margin indicates that it has less control on direct production cost.