Spartech Corporation: a Financial Ratio Analysis
Spartech Corporation is a leading producer of extruded thermoplastic sheet and rollstock, polymeric compounds, and custom engineered plastic products. Their annual production capacity amounts to more than 1.7 billion pounds produced in manufacturing facilities located throughout the United States, Canada, Mexico and Europe.
The company's financial ratios for 2004, 2005, and 2006 were analyzed and indicates that the company is not without problems.
The current ratio for the company has been on a steady decline over the last three years. From the standpoint of a creditor, the reduction of the company's current ratio is not good as the company's short term liabilities is outgrowing its current assets. However, when you look at the company's balance sheets, you see that cash was depleted to be invested in long term assets (property, plant & equipment). The cash depletion along with the increase in Notes Payable attributed to the decline in the current ratio which indicates the company has used cash and short term notes payable to increase their capital assets. From the standpoint of an investor, this is good as the company took an idol asset (cash) and used it to help build capacity to increase sales.
The company's inventory turnover is showing signs of improvement over the last three years going from 7.9 in 2004 to 12.14 in 2006. This means the company's inventory is not sitting idle, but rather, is turning over and generating sales for the company. This is further supported by the increased sales activity for the company which has been increasing year over year for the last three years.
The company's Receivables Days Sales has also been on a steady decline. This is good news for the business as they are showing signs that their collection efforts have been improving over the last three years. The quicker turnover of receivables means the company is collecting it cash faster and is not tying its money up in funding receivables for its customers.
The company's financial ratios for 2004, 2005, and 2006 were analyzed and indicates that the company is not without problems.
The current ratio for the company has been on a steady decline over the last three years. From the standpoint of a creditor, the reduction of the company's current ratio is not good as the company's short term liabilities is outgrowing its current assets. However, when you look at the company's balance sheets, you see that cash was depleted to be invested in long term assets (property, plant & equipment). The cash depletion along with the increase in Notes Payable attributed to the decline in the current ratio which indicates the company has used cash and short term notes payable to increase their capital assets. From the standpoint of an investor, this is good as the company took an idol asset (cash) and used it to help build capacity to increase sales.
The company's inventory turnover is showing signs of improvement over the last three years going from 7.9 in 2004 to 12.14 in 2006. This means the company's inventory is not sitting idle, but rather, is turning over and generating sales for the company. This is further supported by the increased sales activity for the company which has been increasing year over year for the last three years.
The company's Receivables Days Sales has also been on a steady decline. This is good news for the business as they are showing signs that their collection efforts have been improving over the last three years. The quicker turnover of receivables means the company is collecting it cash faster and is not tying its money up in funding receivables for its customers.