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(b)

Firm’s Liquidity

The current assets are clearly more than the current liabilities according to the calculations. Current assets are 2.48 times more than the current liabilities. This is a fine ratio for a company to have. The quick ratio is the sum of the cash that the company has and the account receivable. In this case, the receivable is basically the long-term debts that the company has to pay. That is why instead of adding the amount is subtracted from the cash. The whole term is divided by current liabilities. The outcome of the ratio is 1.35 times. The outcome is probably not ideal but it shows that the company has more assets than its liabilities and long-term debts. That shows that the company can still be running.

 

Asset Management

When it comes to asset management, it is important to calculate the inventory turnover ratio. The inventory turnover ratio is the ratio of the cost of goods sold to the average inventory. In this case, the inventory turnover is 5.29 times. This turnover is more than enough as per the condition of the company. The day’s sales in inventory can be calculated from the inventory turnover by simply dividing the turnover by a total number of days in a year. The average number of days for which the company holds the inventory is almost 69 days. This is a high value and that is why the inventory turnover should not be kept higher. The asset turnover is almost up to 1.6 times. This is not a very high value to support the operations of the company and especially the expansion of the market.

Leverage

The total debt ratio of the company is 0.57 times. This shows that the company has 0.57 times more assets than the liabilities. This is not a bad situation for a company if the products and services the running smoothly. The debt to equity ratio of the company is less than 1. This is a good indication because it shows that there is a lot of shareholder equity involved in the business. This shows that the company doesn’t need to go out and borrow money for itself on its own but has shareholders who have invested enough to cover the expenses. The equity multiplier is preferred to be lower as in that case the company uses less debt to finance its assets. In the case under discussion, the multiplier is up to 2.32 times.

Profitability

The profit margin of the company is 0.7%. This is calculated by dividing net income by net sales. The margin of up to 15 to 20% is considered to be fine normally. The margin for less and probable reason is the inventory levels and the flow of the product. Return on asset is the ratio of net income in a given period to the total value of the assets of the company. The higher the value of the return, the better it is. In this case, the return on assets is 0.011 times. The return on the equity, on the other hand, is 0.026 times. The return on equity is always higher than the return on assets because the company always has higher equity.

Market Value Ratio

Price-earnings ratio is the ratio of the current value of the share to the earnings of the company per share and it is 34.48 times in the case being discussed. It is a high value that is not considered as good generally. Price-sales ratio is .224 times. This means the company is paying 22.4 cents to earn $1. This is a good bargain. Book value represents the per-share value of a company based on the equity of the company available to common shareholders. This shows how much investors are willing to pay for the share as compared to book value and in this case, it is $13.43/ share. The market to book ratio is used to find out the value of the company by comparing the book value to its market value. In this case, the value is 0.84 times and that is considered a good value.

 

(c)

The overall financial position of the company is fine. There are some troubles that the company might need to address in the areas of inventory and asset management. The management of the assets is what makes the company earn more. This is where the thought needs to be put. Otherwise, the liabilities of the company are quite under control and the market value of the company is also not in a bad shape as per the figures of the calculations. The total turnover of the company is not that impressive and that is probably because of the fact that inventory turnover is much higher than needed by the company.

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