financial analysis

Topics: Financial ratios, Generally Accepted Accounting Principles, Financial ratio Pages: 5 (1443 words) Published: September 28, 2014
SPARTECH Corporation 20092010 Industry Average Current Ratio 1.6 times 1.5 times 2.26 Quick Ratio 0.88 times 0.85 times 0.87 Average collection period 51 days 48 days 13 days Days inventory held 28 days 31 days 134 days Days payable outstanding 47 days 52 days 37 days Cash Conversion Cycle 32 days 27 days 133 days Cash flow from operating activities 65,264 39,330

Current Ratio Trend: In both years, the company has the ability to use its resources to pay for its short term debt. However, the current ratio has decreased from 2009 to 2010. This means the company is becoming weaker.

Quick Ratio Trend: The quick ratio has decreased from 2009 to 2010. This means the company is becoming weaker and has less current assets (excluding inventory) in relation to its current liabilities. Therefore, its ability to pay short term creditors has not improved.

*Quick Ratio compared to current ratio: The company's current ratio is significantly higher compared to its quick ratio. It is a clear indication that the company's current assets are dependent on inventory.

Average Collection Period: Spartech Corporation average collection period ratio has decreased from 2009 to 2010. However, if the company "grants" its customers 60 days to pay purchases placed on credit, then both ratios of 51 days and 48 days are acceptable. If, on the other hand, the company allows its customers only 30 days to pay for purchases placed on credit, then the management of Spartech Corporation should attempt to reduce the average collection period ratio by screening customers more carefully or by implementing new collection strategies and policies.

Days inventory held: In both years the Spartech Corporation has efficiently managed its inventory.
Days Payable outstanding: The Spartech Corporation is taking longer to pay suppliers in 2010 compared to 2009. Although it indicates a very good sign because the company has earned a return on cash held.

Cash Conversion cycle: Spartech Corporation has improved its cash conversion cycle from 2009 to 2010 because of the improvement in collection of accounts receivable, moving inventory faster and taking longer to pay accounts payable.

Asset Liquidit and Asset Management Efficiency

SPARTECH Corporation 20092010 Industry Average

Accounts receivable turnover 7.1 times 7.6 times 28.08 Fixed asset turnover 2.3 times 3.2 times 8.19 Total asset turnover1.4 times 1.8 times 2.13

Accounts receivable turnover: Although there is an increase in accounts receivable turnover from 2009 to 2010, it is still low compared to the industry average. This indicates inefficiency in collecting outstanding sales.

Fixed asset and total asset turnover: The fixed asset and total asset turnover ratios from 2009 to 2010 has improved. This indicates that the business has less money tied up in fixed assets for each dollar of sales revenue. To improve asset turnover the company needs to increase production efficiency or price levels or reduce current or noncurrent assets.

Debt Financing and Coverage

SPARTECH Corporation 20092010 Industry Average

Debt to total asset64 %69 %49.2
Long term debt to total capitalization51 %53 %24.1
Debt to equity2 %2 %0.96
Financial Leaverage 2.3 %3 %

Debt to total asset: The debt ratio has increased from 2009 to 2010. In 2010, the company's debt ratio is 69 percent which means the company's assets are financed by creditors. From a dollar point of view, for every one dollar the company has...
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