Financial
QUESTION P3-22:
Cross–sectional ratio analysis :- Use the Financial Statement below and on page 106 for Fox Manufacturing Company for the year ended December 31, 2012, along with the Industry average ratio below, to:
a) Prepare and interpret a complete ratio analysis of the firm’s 2012 operations
b) Summarize your findings and make recommendations.
Based on the overall performance of Fox Manufacturing Company, it shows that the company should improve it debt financing and liquidity performance. The company is depending more on it debts compare to it assets. This may give greater financial risk to the company. To decrease it debt ratio, the company should not rely more on its borrowing to finance its assets whereas should base more on it equity.
In term of liquidity performance, the company should negotiate longer payment terms with their vendors whenever possible to keep their money longer. The decreasing trend of current ratio in Fox Manufacturing Company may suggest a stable working capital cycle of the company through the adaption of more efficient management practices. While the lower of quick ratio in Fox Manufacturing Company due to better credit terms with suppliers than the competitors. Overall, Fox Manufacturing Company needs improvement in its liquidity ratios and possibly a reduction in its total liabilities.
On the other hand, all the activity ratios of the company have a faster turnover of assets compared to the industry. The faster a business is able to convert its assets into cash or sales, the more efficient it runs. Fox Manufacturing Company has managed its assets very well compared than Industry. This firm should find a supplier that offer lower price, so it will increase gross profit and lead to high net profit margin.
REFERENCES
http://accounting-simplified.com/financial/ratio-analysis/current.html
http://accounting-simplified.com/financial/ratio-analysis/quick-acid-test.html
Cross–sectional ratio analysis :- Use the Financial Statement below and on page 106 for Fox Manufacturing Company for the year ended December 31, 2012, along with the Industry average ratio below, to:
a) Prepare and interpret a complete ratio analysis of the firm’s 2012 operations
b) Summarize your findings and make recommendations.
Based on the overall performance of Fox Manufacturing Company, it shows that the company should improve it debt financing and liquidity performance. The company is depending more on it debts compare to it assets. This may give greater financial risk to the company. To decrease it debt ratio, the company should not rely more on its borrowing to finance its assets whereas should base more on it equity.
In term of liquidity performance, the company should negotiate longer payment terms with their vendors whenever possible to keep their money longer. The decreasing trend of current ratio in Fox Manufacturing Company may suggest a stable working capital cycle of the company through the adaption of more efficient management practices. While the lower of quick ratio in Fox Manufacturing Company due to better credit terms with suppliers than the competitors. Overall, Fox Manufacturing Company needs improvement in its liquidity ratios and possibly a reduction in its total liabilities.
On the other hand, all the activity ratios of the company have a faster turnover of assets compared to the industry. The faster a business is able to convert its assets into cash or sales, the more efficient it runs. Fox Manufacturing Company has managed its assets very well compared than Industry. This firm should find a supplier that offer lower price, so it will increase gross profit and lead to high net profit margin.
REFERENCES
http://accounting-simplified.com/financial/ratio-analysis/current.html
http://accounting-simplified.com/financial/ratio-analysis/quick-acid-test.html
References: http://accounting-simplified.com/financial/ratio-analysis/current.html http://accounting-simplified.com/financial/ratio-analysis/quick-acid-test.html http://bizfinance.about.com/od/financialratios/f/Total_Asset_Turnover.htm http://ratio-analysis.org/activity-ratios.php http://www.aaii.com/computerizedinvesting/article/liquidity-ratio-analysis.mobile http://www.investopedia.com/terms/a/assetturnover.asp