Checkpoint # 2
Interpreting Financial Ratios
From what I have read and gathered; over the past (3) three years, Luna Lighting
financials does have the possibility to expand within the next few years. The companies
average collection period on money has decreased in the last three years and is better than
industry average. The inventory turnover rate has maintained at steady level and is in line
with industry average. The fixed assets turnover rate has decreased and is well below
industry average. The total asset turnover has gone down below the industry average. The
Debt ratio which is total debt/total assets for all three years is 50%. The debt ratio is a little
lower than the company average which is good. With this information the company would
be able to meet their debt requirements. Time interest earned is operating profit-interest
expense is higher than the industry average by 1.1. The fixed charge coverage has
decreased in the last three years and is 1.1 lower than the industry average.
The fixed coverage charge ratio measures the payments with the leases and refers to the
rent expense in the annual reports, being lower then industry average is a good sign. The
gross profit margin has remained consistent for the last three years and is 3% higher than
industry average, another good sign that the company is earning money. The operating
profit margin is lower than industry average, this would make me want to look and see if
there have been cut backs and what has brought down the cost because it was significantly
higher in previous years. The net profit margin is also lower than the industry average and
this would lead me to believe something is going on and needs to be looked into because
the gross was so much better. The return on assets and return on equity fall way below the...
References: CheckPoint assignment, Interpreting Financial Ratios, which is due on Thursday, Day 4.
Complete problem 6.2 on page 230 (Chapter 6). Submit your answer in 200 to 300 words.
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