Mba540 Lei Problem Solution (Ratio Analysis)
A ratio analysis of the firm’s financial performance is the most reliable way to identify the issues and opportunities for the joint venture. Generally, a ratio analysis includes four groups: (1) Liquidity ratio, (2) Accounting activity ratio, (3) Profitability ratio, and (4) Leverage ratio.
Table 1 is a liquidity ratio analysis of LEI, SW, and CF. The current and quick ratios are designed to measure the firm’s short-term liquidity, or the firm’s ability to meet its short-term debts from its current assets. The debt-to-equity ratio measures the firm’s ability to fulfill its long-term obligations.
Table 1: Liquidity Ratio Analysis
Name of Company Current Ratio Quick Ratio
LEI 1.49 1.17
SW 2.14 1.09
CF 1.91 1.23
*All calculation based on LEI, SW, and CF 2004 financial information provided by University of Phoenix.
From Table 1, the current ratio for LEI, SW and CF are all acceptable. With 1.91:1 for CF, or the consolidated firm has $1.91 of current assets to meet $1.00 of its current liability, the ratio indicates the merger creates adequate liquidity for the firm to meet current liability. The quick ratio stands in good shape as well. With 1.12:1 for CF, or the consolidated firm has $1.23 of quick assets to meet $1.00 of its current liability.
Table 2 is the accounting activity ratio analysis of LEI, SW, and CF. Accounting activity ratio is designed to measure the firm’s efficiency in turning inventory, sales, assets, accounts receivables or payables. This ratio also ties in to the firm’s ability to meet both short- and long-term obligations.
Table 2: Accounting Activity ratio Analysis
Name of Company Asset Turnover Rate DSO (day) Inventory Turnover Rate
LEI 1.64 57.34 15.03
SW 0.87 63.29 4.75
CF 1.39 37.41 9.63
*All calculation based on LEI, SW, and CF 2004 financial information provided by University of Phoenix.
From Table 2, the asset turnover rate indicates the use of assets is effective for the consolidated firm with ratio at 1.39.
Table 1 is a liquidity ratio analysis of LEI, SW, and CF. The current and quick ratios are designed to measure the firm’s short-term liquidity, or the firm’s ability to meet its short-term debts from its current assets. The debt-to-equity ratio measures the firm’s ability to fulfill its long-term obligations.
Table 1: Liquidity Ratio Analysis
Name of Company Current Ratio Quick Ratio
LEI 1.49 1.17
SW 2.14 1.09
CF 1.91 1.23
*All calculation based on LEI, SW, and CF 2004 financial information provided by University of Phoenix.
From Table 1, the current ratio for LEI, SW and CF are all acceptable. With 1.91:1 for CF, or the consolidated firm has $1.91 of current assets to meet $1.00 of its current liability, the ratio indicates the merger creates adequate liquidity for the firm to meet current liability. The quick ratio stands in good shape as well. With 1.12:1 for CF, or the consolidated firm has $1.23 of quick assets to meet $1.00 of its current liability.
Table 2 is the accounting activity ratio analysis of LEI, SW, and CF. Accounting activity ratio is designed to measure the firm’s efficiency in turning inventory, sales, assets, accounts receivables or payables. This ratio also ties in to the firm’s ability to meet both short- and long-term obligations.
Table 2: Accounting Activity ratio Analysis
Name of Company Asset Turnover Rate DSO (day) Inventory Turnover Rate
LEI 1.64 57.34 15.03
SW 0.87 63.29 4.75
CF 1.39 37.41 9.63
*All calculation based on LEI, SW, and CF 2004 financial information provided by University of Phoenix.
From Table 2, the asset turnover rate indicates the use of assets is effective for the consolidated firm with ratio at 1.39.