Liquidity ratios for a company help whomever is analyzing the data determine the company’s liquidity. When a company has good liquidity they are able to pay off their short term debt without having to take out any additional financing.
We will look at Herman Miller’s current ratio for 2009 and 2010. The current ratio is calculated by taking the company’s current assets and dividing it by the current liabilities. It shows how many times the current assets can cover the current liabilities. 2009 current ratio | 2010 current ratio |
450.9/282.2= 1.597| 394.7/313= 1.261|
Herman miller’s current ratio in 2009 of 1.597 shows they have approximately $1.60 of current assets to ever $1.00 in current liabilities. In 2010 they had $1.26 of current assets to ever $1.00 of current liabilities. This is a bit of a drop from 2009 to 2010. With the ideal point for the current ratio being above 1.0; Herman Miller can cover their short term debt without any financing but, the ratio is still mediocre. Debt Management Ratios
Debt management ratios show to what extent a company uses borrowed funds to finance its operations. These ratios are important to a company because creditors use them to determine the riskiness of the company’s financial position.
Using the debt ratio we can determine how much of Herman Miller’s assets are provided through debt. The debt ratio is found by taking the company’s total debt and dividing it by the total assets of the company. Here is the debt ratio for 2009 and 2010 Debt Ratio 2009| Debt Ratio 2010|
759.3/767.3= .99| 690.5/770.6= .896|
From the debt ratio we can tell that Herman Miller has nearly as much debt as assets in 2009. This could shy away some creditors. In 2010 they improved by about 10% which really helps their potential ability to gain more financing from creditors. With ideal ratio being below 1 Herman Miller is ok here but far from good. Profitability Ratios
Profitability ratios are used to determine how profitable a company is during a specific period of time. These ratios are important because most investors will look at them when deciding whether or not to take stake in your company. High profitability shows that your company is strong financially, and, can also show that your company is growing.
We will look at the return on assets ratio for Herman Miller. The ROA is found by taking the net income and dividing it by the total assets of the company. The ROA shows how well a company can turn the money it has to invest into net income. Here is the Herman Miller’s ROA for 2009 and 2010 ROA 2009 | ROA 2010 |
68.0/767.3= 8.86%| 28.3/770.6= 3.67%|
Herman Miller has pretty good ROA considering the industry they are in. according to statistics posted by Fortune 500 on money.cnn.com Herman miller was one of the few profitable companies in their industry with many of the top competitors losing money from 2007-2009. So looking at the industry this is a strong ROA. (http://money.cnn.com/magazines/fortune/fortune500/2009/industries/216/index.html) SWOT Analysis
The first strength we will talk about is that Herman Miller is a profitable organization. In the two years that we looked at (2009 & 2010) Herman Miller had a positive ROA. This shows that even during the harsh economic times in the United States over the last four years Herman Miller has managed to make a profit where a lot of their competition struggled.
Another strength that Herman Miller has is its management. The best example of this being a strength is the fact that Herman Millers top executives are willing to take pay cuts before the general workforce in 2009 they took a 10% cut in January and another 10% in march when they cut all other employees 10%. Showing your workforce that you are willing to make the sacrifices to stay employed before they bottom of the totem pole makes the employees feel appreciated...