Indicated Ratios for Campsey Calculated
a) Calculate the indicated ratios for Campsey
Current Ratio
=
=
= 1.98 x
Industry average
= 2.0 x
The current ratio indicates the extent to which current assets cover current liabilities. The current ratio is near to industry average. So, we can say the current obligations can be met.
Days sales outstanding
=
=
= 75 Days
Industry average
= 35 Days
Campsey’s days sales-outstanding is more than twice as long as the industry average, indicating that the firm should make tighter credit or enforce a more stringent collection policy.
Inventory turnover
=
=
= 6.66 x
Industry average
= 6.7 x
Inventory turnover for this company is same as the industry turnover. It means that this company is quite good in maintaining their inventory section. There is less chance of their inventory getting obsolete in the market. But as there collection period is high they are not able to utilize their cash for more production.
Total assets turnover
=
=
= 1.70 x
Industry average
= 3 x
Total assets turnover is not above the industry average, indicating that the company is not generating a sufficient volume of business given its investment in total assets. Debt management ratio will help us to determine if this actually is the case.
Debt Ratio
=
=
= 0.619
= 61.9%
Industry average
= 60.0%
Creditors prefer low debt ratio, the greater the cushion against creditors’ losses in the event of liquidation. It’s debt ratio is 61.9%. That means that its creditors have supplied above the half of the total firm’s financing. Creditors might be reluctant to lend the firm more money, and management would be subjecting the firm to a greater chance of bankruptcy if it sought to increase the debt ratio much further by borrowing additional funds.
Return on total assets
=
=
= 0.029 = 2.9%
Industry average
= 3.6%
The assets turnover ratio is well below the industry average so sales should be
Current Ratio
=
=
= 1.98 x
Industry average
= 2.0 x
The current ratio indicates the extent to which current assets cover current liabilities. The current ratio is near to industry average. So, we can say the current obligations can be met.
Days sales outstanding
=
=
= 75 Days
Industry average
= 35 Days
Campsey’s days sales-outstanding is more than twice as long as the industry average, indicating that the firm should make tighter credit or enforce a more stringent collection policy.
Inventory turnover
=
=
= 6.66 x
Industry average
= 6.7 x
Inventory turnover for this company is same as the industry turnover. It means that this company is quite good in maintaining their inventory section. There is less chance of their inventory getting obsolete in the market. But as there collection period is high they are not able to utilize their cash for more production.
Total assets turnover
=
=
= 1.70 x
Industry average
= 3 x
Total assets turnover is not above the industry average, indicating that the company is not generating a sufficient volume of business given its investment in total assets. Debt management ratio will help us to determine if this actually is the case.
Debt Ratio
=
=
= 0.619
= 61.9%
Industry average
= 60.0%
Creditors prefer low debt ratio, the greater the cushion against creditors’ losses in the event of liquidation. It’s debt ratio is 61.9%. That means that its creditors have supplied above the half of the total firm’s financing. Creditors might be reluctant to lend the firm more money, and management would be subjecting the firm to a greater chance of bankruptcy if it sought to increase the debt ratio much further by borrowing additional funds.
Return on total assets
=
=
= 0.029 = 2.9%
Industry average
= 3.6%
The assets turnover ratio is well below the industry average so sales should be