Submitted by: Submitted by vadimusa82
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Category: Business and Industry
Date Submitted: 04/15/2016 10:19 PM
Financial Ratio Analysis
All the number, calculated in financial ratio exercise can tell us about the financial health and trend of the company.
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. The liquidity of a company increased in 2015 in comparison with 2014 year (1,55 vs. 1,64), that means that the company’s ability to pay short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables) increased. In other words, the company has more resources to pay its short-term debt.
An increase in quick ratio from 1.51 in 2014 to 1.61 in 2015 means that the company has more units’s worth of easily convertible assets for each unit of its current liabilities. In other words, we can see that an indicator of a company’s short-term liquidity, a company’s ability to meet its short-term obligations with its most liquid assets, increased.
The results of calculation of average collection period show that in 2015 it takes 8 days less for a company to receive payments from its customers and clients. The company’s average collection period decreased from 67.88 in 2014 to 59.66 days in 2015, which indicates that the company is taking less time to convert its receivables into cash.
The Inventory turnover rate increased from 9.99 in 2014 to 11.33 in 2015, which is the number of times inventory is sold.
Profit margin is also increased from 0.13 to 0.18 which means that the company in 2015 has 5 cents more income from every dollar of total revenue earned.
Overall the company shows great results and effective management.