BSA/500 – Business Systems I
July 2, 2012
Balance Sheet and Income Statement Commentary
JB Hunt (Trucking and logistics)
On JB Hunt’s balance sheet for 2011 lists current assets of $513,542,000 and current liabilities of $438,515,000, yielding a current ratio of 1.17, which indicates the company, has $1.17 of current assets for every $1 of current liabilities. The previous year 2010, the current ratio was 0.91. This shows a 29% increase in the current ratio over the previous year. An organization with a current ratio of 2 or higher is usually viewed by lenders to be a safe risk for short-term credit. Based on the 29% increase in current ratio, JB Hunt is in a better position to obtain short-term financial than it was in 2010. However, it is still below the benchmark of 2 that lenders feel to be a safe risk. Under the economic circumstances of the past five years, lenders may take into consideration other factors such as comparing JB Hunt’s current ratio to that of other competing trucking companies. JB Hunt’s quick ratio for 2011 is 0.95 and for 2010 was 0.70. A quick ratio or “acid-test” measures cash, securities, and accounts receivables of a company in comparison to its current liabilities. The quick ratio is especially important to companies that have a history of challenges with converting inventory into cash quickly. This difficulty could interfere with the company’s ability to pay its short-term debt. A quick ratio between 0.50 and 1.0 is typically perceived as satisfactory, but with a shadow of potential cash-flow problems. JB Hunt’s quick ratio improved by 36% over the previous year, which indicates the company, has improved its ability to meet its short-term obligations. JB Hunt’s debt to stockholders equity ratio for 2011 is 299% and 242% for 2010. This ratio evaluates the extent to which the company relies on borrowed money for its operations. A ratio over 100% indicates a business has too much debt and not enough equity to pay off the debt if they suddenly needed to do that. With a debt to equity ratio of 299%, JB Hunt has a significantly high level of debt when compared to its equity. Investors and lenders would most likely view the company to be too risky to either invest in or to lend money to. JB Hunt’s basic earnings per share ratio for 2011 is 1.07 and 0.79 for 2010. This ratio indicates the amount of profit the business earned for each share of outstanding common stock. The earnings per share ratio reveal earnings that potentially stimulate the growth of a company and provide funds, which can be distributed as a dividend to stockholders. JB Hunt’s basic earnings per share increased by 35% over the previous year, which indicates the company has money to reinvest to ignite further growth. JB Hunt’s return on sales ratio for 2011 is 94% and 92% for 2010. This ratio indicates if the company is keeping pace with or exceeding its competitors in producing income from sales and services. JB Hunt increased its sales ratio by 2% over last year. A 94% sales ratio is an extremely high number compared with the other three companies analyzed for this assignment. To determine how competitive this ratio is with the ratios of other trucking companies would require additional research and analysis of more companies, which is outside the scope of this assignment. JB Hunt’s return on equity ratio for 2011 is 45% and 35% for 2010. This ratio assesses risk by indicating how much a company earned for each dollar invested by shareholders. JB Hunt’s equity ratio of 45% is a profitable ratio especially since investors consider a ratio over 15% to be a reasonable return. In addition this ratio is an increase of 29% over the previous year. UFP Technologies (Plastics manufacturing)
The 2011 balance sheet for UFP Technologies lists current assets of $58,040,394,000 and current liabilities of $9,465,304,000, yielding a current ratio of 6.13, which indicates the...