# Riordan's Manufacturing Financial Ratios

Topics: Generally Accepted Accounting Principles, Balance sheet, Financial ratio Pages: 7 (1816 words) Published: June 6, 2009
Running head: RIORDAN MANUFACTURING’S FINANCIAL RATIOS

Riordan Manufacturing’s Financial Ratios
University of Phoenix
Riordan Manufacturing’s Financial Ratios
Riordan Manufacturing, a global plastics manufacturer was founded by Dr. Riordan in 1991. Today the corporation has expanded from the fan manufacturing plant in Michigan into a manufacturer employing 550 people with projected annual earnings of \$46 million. Riordan’s has facilities located in America and China and the major customers are automotive parts manufacturers, aircraft manufacturers, the Department of Defense, appliance manufacturers, and beverage makers and bottlers (Apollo, 2006). In an attempt to evaluate the success of Riordan a financial ratio analysis is being conducted. The financial ratio analysis will provide necessary information about Riordan such as: how efficiently assets are used, the extent of reliance on debt to finance assets, the financial health, and an estimate of future earnings (Investopedia, 2009). LIQUIDITY RATIOS: SHORT-TERM SOLVENCY

Table 1: Current Ratio

The current ratio is calculated to determine a company’s ability to meet short term debt obligations. If the current assets of a company are more than twice the current liabilities the company is considered to have good short term financial strength (Investor, 2008). The following table provides a comparison of Riordan’s current ratio for 2004 and 2005: 2005 2004

Current assets \$14,555,0922.09 times\$14,643,4562.43 times Current liabilities\$6,974,094\$6,029,696

Current assets are divided by current liabilities to determine the dollar amount of current assets for every dollar of current liabilities as well as determine how financially positioned Riordan Manufacturing is. According to Nickels and McHugh creditors and banks consider a current ratio of 2 or better to be acceptable (Nickels-McHugh, 2004). Riordan Manufacturing’s current ratio for 2004 – 2005 shows that although they are at a 2 at end of 2005, the drop from 2.43 to 2.09 should raise concerns for Riordan. The availability of resources for Riordan is not as plentiful as before meaning Riordan must enact changes to improve the current ratio. While comparing Riordan’s current ratio to others they are doing better than some and worse than others but holding their own. ACTIVITY RATIOS: ASSET LIQUIDITY, ASSET MANAGEMENT EFFICIENCY

Table 2: Accounts Receivable Turnover Ratio

The accounts receivable (A/R) turnover ratio reflects an organization’s effectiveness in collecting debts (BizWiz). Accounts receivable turnover ratios are categorized under activity ratios and also indicate an organization’s effectiveness in management. The following table provides a comparison of Riordan’s A/R ratio for 2004 and 2005: 2005 2004

Net sales\$50,823,685 8.38 times\$46,044,288 8.14 times
Average A/R\$6,062,838\$5,657,216

The A/R turnover ratio is calculated by dividing the net sales by the accounts receivable. Riordan’s A/R turnover ratios indicate Riordan’s management is effective. From 2004 to 2005 the A/R turnover ratio has went from 8.14 to 8.38 which is positive. According to the A/R turnover ratio the credit policies at Riordan are effective and Riordan’s customers are reliable as the numbers show the majority of debts are collected. Riordan’s A/R turnover ratio is as good as many organizations listed but also comes out very low compared to some organizations. According to an online source, Riordan’s financial statements and ratios suggest the company’s ratios are close to ideal though (Gradua, 2008).

LEVERAGE RATIOS: DEBT FINANCING AND COVERAGE

Table 3: Debt Ratio

The debt ratio tells how much the company relies on debt to finance assets. The lower the company’s reliance on debt for assets formation the better off the company is, although low numbers do force companies to give up the tax reduction they would receive due to...

Accounts Receivable Turnover Ratio BizWiz Consulting Retrieved

Income Statement
For the 12 months ending September 30, 2005