Question

Perform a ratio analysis and comment on the internal trend, industry benchmark and possible ways to improve each ratio listed below. The use of bullet form is acceptable. 2020 2019 2018 Industry Profit Margin 7.00% 6.50% 6.20% 7.50% Total Asset Turnover 1.30 1.25 1.20 1.10 ROA 9.10% 8.13% 7.44% 8.25% Receivable Turnover 6.00 6.25 6.50 8.00 Inventory Turnover 10.50 11.5 11.00 10.00 Current Ratio 2.20 2.30 2.30 2.40 Debt to Total Assets 56.00% 54.00% 52.00% 45.00% Times Interest Earned 3.90 4.00 4.10 5.00 A/P Turnover 7.00 8.00 9.00 10.00

Answer 1

Given years like 2018. 2019. 2020

Industry profit margin. 6.2%. 6.5%. 7%

Its showing every year rising profit margin and performing good.

Total assets turnover. 1.20 1.25 1.30

It's showing increasing every year and performing well that means The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets.

The higher the asset turnover ratio, the more efficient a company is at generating revenue from its assets.

Return on assets(ROA). 7.44%. 8.13%. 9.1%

It's showing increasing every year and performing good

That means Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets.

ROAs over 5% are generally considered good and it is benchmark.

Receivable turnover. 6.5 6.25. 6

It is showing decreasing every year it means A low receivable turnover ratio can indicate that a company's collection of accounts receivable is not efficient and the company has more customers not paying their debts quickly.

Inventory turnover is not decreasing neither increasing in proper way and benchmark is 5 to 10 for most industries.

In this situation above 10 is not good.

Current ratio 2.3,2.3,2.2

In above cases it is more than 2,so not doing good because good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts and benchmark is 1.2 to 2.

Debt to total assets is increasing every year it means higher debt-to-asset ratio suggests higher risk. Generally, a ratio of 0.4 – 40 percent – or lower is considered a good debt ratio and benchmark is 40% or lower.

Times interest earned is decreasing every year it indicates times interest earned ratio greater than 2.5 is considered an acceptable risk and benchmark.

Accounts payable turnover is decreasing every year and it indicates decreasing ratio is generally more unfavorable as payables not being paid quickly.