Question

In: Accounting

Financial statement ratio analysis can reveal important insights about the position and performance of a firm....

Financial statement ratio analysis can reveal important insights about the position and performance of a firm. Provided below are key financial ratios for BlueScope Steel Ltd and United States Steel Corporation. Both firms are manufacturers of steel products with operations spanning a number of countries.

Ratio

BlueScope Steel Ltd

United States Steel Corporation

2015

2014

2013

2015

2014

2013

Current Ratio

1.59

1.62

1.76

1.82

1.63

1.87

Quick/Acid Test Ratio

0.8

0.79

0.88

0.85

0.92

0.85

Total Debt/Equity

0.19

0.18

0.16

1.3

0.92

1.17

Inventory Turnover

3.23 Times

3.2 Times

3.16 Times

4.88 Times

5.96 Times

6.17 Times

Receivables Turnover

7.93 Times

7.92 Times

7.64 Times

6.52 Times

8.27 Times

8.37 Times

Required:

  1. Discuss what the data in the table above reveals about the firms’ short-term liquidity, long-term solvency, and efficiency.
  1. Discuss how horizontal and vertical analysis could supplement the above analysis of the firms’ financial statement ratios.

Solutions

Expert Solution

Short term liquidity of both the companies ability to meet its short term obligations with its most liquid assets like cash, short term investments.

Long term solvency is related to Debt Equity ratio. it is calculated by dividing a company's total liabilities by its shareholder equity. Blue Scope Steel ltd is very lower comparatively other company and the company cash flow is sufficient to meet its short and long term liabilities. Blue Scope Steel is a good company worthiness.   In case of United State Steel debt equity ratio is higher percentage result indicates a company's increased ability to cover its liabilities over the long term. United State Steel debt equity ratio is reduced from 1.17 to .92 but again it has increased to 1.3.

Efficiency : Blue Scope Steel ability to manage its inventory properly due to low ratio where as United state steel is higher side and it indicates that company is not managing its inventory properly but company might have taken precautions due to inventory turnover has been reducing gradually from 6.17 to 4.88 times.

Receivable turnover ratio : Bluescope Steel is higher receivables turnover ratio relative to its peers is favorable and constantly maintaining the levels.. where as United State Steel has maintained higher in 2013 but it has reduced to 6.52 from 8.37 times.

B. Bluescope Steel has been constantly performing in all areas comparatively peer company.

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