Topics: Financial ratio, Financial ratios, Asset Pages: 9 (2179 words) Published: March 14, 2014

Everelite Technology Co. Ltd. provides professional data center planning and integration services in Japan. It provides consulting, system integration, and support and maintenance services in the fields of mainframe, application, network, and storage. The company also offers various classes of computer systems based on a UNIX platform, WINTEL computer system, networking and peripheral equipment, database systems, Internet solutions, network management systems, network security systems, billing systems, and e-commerce. In addition, Everelite provides Sandio, a mobile communication Sync Server and Sync Client for small mobile equipment. The company was founded in 1994, and is one of the most successful IT solution providers of software and services.

In 2008, Everelite had increased service capacity and undertaken a major marketing campaign in an attempt to “go global”. At the same year, an economic recession – a general slowdown in overall economic activity, and a restructuring of the finance industry caused the demand for IT services to decline. Moreover, the electronics manufacturing industry had also slashed their IT budgets substantially. Because of these occurrences, there was a substantial decline in the revenue for the information industry in 2008. In connection with this, Everelite, being a leading e-business solutions provider in the information industry was greatly affected as well.

The quantitative effects of these following possible causes in 2008 can be examined in the financial statements and ratio analysis of Everelite for the years 2007, 2008 and 2009.

 Table 1: Ratio Analysis of Everelite

From the table provided above, we can get ratios that can be classified into five major categories namely: (1) liquidity, which speaks of the company’s ability to meet currently maturing obligations, (2) asset management, which shows how effective and efficient the company is in handling its assets, (3) debt management, which gives users of financial information an idea on how the company manages its debt, how high its leverage is and up to what extent the company can cover their annual interest payments, (4) profitability, which gives a measure of the net result of all the financing policies and operating decisions that reaffirms the operating income performance and (5) market value, which relates the current market price of the company’s stocks to the earnings and actual book value.

Why use ratios?

We use ratios because ratios are important in the analysis of financial statements by showing already simplified figures that makes it easier to understand the relations between elements of the financial statements. Ratios give potential users of financial statements an overview of the entity’s financial performance and position. Typically, just seeing the figures alone would not speak of the totality and actual reality behind the balances of the accounts inclusive in the general purpose financial statements that is why we make use of ratios.

Applying the use of ratios, we calculate and analyze the following for Everelite Technology Co., Ltd.:

1) Liquidity Ratios

Current Ratio = = = 1.85x

Quick Ratio = = =1.003x

Current Ratio = = = 1.78x

Quick Ratio = = = 0.87x

Current Ratio = = = 2.02x

Quick Ratio = = = 1.14x

Since the company increased its liabilities to finance their efforts of going global, its current ratio decreased in 2008. Furthermore, in considering its quick ratio and therefore excluding inventories, it took its lowest dip in 2008 with the assets not capable of covering for its current liabilities. However, the company projects that it would somewhat improve in 2009 by increasing its assets to some extent with only a slight increase in liabilities. With regard to the quick ratio, the company forecasts a...

References: Brigham, Eugene,, 2012, Financial Management Fundamentals, 12th edition, pp. 79-84, Cengage Learning Asia, Philippines
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