Liquidity Ratio: measure the availability of cash to pay debt.
Current Ratio = Current assets/ Current Liabilities
262,515/ 285,030= 0.92
There is a problem meeting its short term obligations
The best way to improve this ratio and better position the business to cover its short-term obligations is to better manage current liabilities (accounts payables). Generate more profit (cash) out of each sale by increasing profit (as long as it is competitive within the industry), reducing costs of goods sold (making the product with less cost or providing services with less costs) or finding efficiencies throughout the operating cycle.
Asset Management Ratio: indicate how successfully a company is utilizing its assets to generate revenues.
Inventory Turnover= COGS/ Average inventory
1,428,730/ 18,660= 76.57
Indicate a shortage or inadequate inventory levels, which may lead to a loss in business.
Average days to sell the inventory= 365 days/ inventory turnover ratio 365/ 76.57= 4.8
Measure of the number of times inventory is sold or used in a time period (a year). A low turnover rate might point to overstocking, obsolescence, or deficiencies in the product line or marketing effort. On the other hand, a high turnover rate might indicate inadequate inventory levels, which can lead to a loss in business, as the inventory is too low (stock shortages).
Receivables Turnover= Sales/ Accounts Receivable
1,784,080/ 242,320= 7.36
A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.
Days Receivable= 365/ Receivables Turnover
365/7.36= 49.6= 50
The receivables turnover ratio is used to calculate how well a company is managing their receivables.
Total assets turnover= Net Sales Revenue/ Average Total Assets 1,784,080/ 294,565= 6.06
Measures the efficiency of a Co. use of its assets in generating sales revenue. Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
Debt Management Ratio: measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. The use of debt can improve returns to stockholders in good years and increase their losses in bad years.
Debt Ratio= Total Liabilities (Total Debt)/ Total Assets
(285,030+ 15,000)/ 294,565= 1.02
All assets are financed by creditors and some losses are covered by creditors.
Indicates the proportion of a company's debt to its total assets. It shows how much the company relies on debt to finance assets. The higher the ratio, the greater the risk associated with the firm's operation. A low debt ratio indicates conservative financing with an opportunity to borrow in the future at no significant risk.
Profitability Ratio: represents the % of total sales that Co. retains after incurring the direct costs (variable costs) associated with producing the goods sold.
Return on Assets= Net Income/ Average Assets
17,610/ 294,565= 5.98%
Indicates that the company is asset heavy.
Net Profit Margin= Net Income/ Sales Revenue
17,610/ 1,784,080= 0.987%
A high percentage of each dollar generated by the company in revenue is actual profit
Gross Profit Margin=
(1,784,080-1,428,730)/ 1,784,080= .20%
Indicates that gross margin isn’t large enough to cover other expenses beyond cost of goods sold.
Purpose of margins is to determine the value of incremental sales, and to guide pricing and promotion decision. Understanding and monitoring gross margins can help business owners avoid pricing problems, losing money on sales, and ultimately stay in business. Helps avoid offering prices that are too low or have costs that are too high to ultimately make a profit.
Strengths, Weaknesses, Opportunities, and Threats---
Fast Service/ delivery- supplied paint...
Please join StudyMode to read the full document