Part 1: Summarize the trends in your company’s ratio performance over the 3 most recent years. The company’s return on assets has increased steadily over the last 3 years. It went from 20% in the first year to 25% the third year. Similar to the increase in return on assets (ROA), it has gone from 15% in years 1 and 2 to 20% by year 3. Positive trends have also been observed in return on investment (ROI), which has increased from 8% to 12% over the past 3 years. Over the past three years, liquidity ratios have remained stable at 1.5. The current ratio however has increased from 1.5 to 1.2 over the previous 3 years. Positive trends can also be seen in the debt management ratios. Long-term debt is decreasing, from 0.8 to 0.6 year 1, and total debt to equity falling from 1.2 to 1.0 year 1. In addition, the interest coverage ratio increased from 3 to 4. There have been mixed results in asset management. Total asset turnover remained constant at 2. Receivables turnover decreased from 6 in years 1 and 5 in 2013, inventory turnover increased from 4 in years 1 and 5 in 3, while inventory turnover rose from 4 in Year 1 to 5. Accounts payable turnover also increased from 2 in 1 to 2.5. The book value per share also increased from $10 to $12 between year 1 and year 3.
Part 2: Analyze whether each ratio listed in Part 1 is showing an increase in or decline in performance. With ROA and ROE showing significant increases in the past three years, there is a trend for profitability. There is an upward trend in liquidity ratios, and the current ratio shows an increase. The trend in debt management ratios is positive, with long term debt to equity decreasing, total debt increasing, and the interest coverage ratio declining. Asset management ratios reveal a mixed trend. Total asset turnover remains constant while receivables turn down and inventory and accounts payable turnover increase.
Part 3: Compare your chosen company’s ratio performance to the industry competitor ratios in the most recent year based on Appendix D. Compared to the industry competitors, the company’s ROA and ROE are higher, gross margin is lower and net margin is average. The company’s quick ratio is higher and current ratio is average. The company’s long-term debt to equity and total debt to equity ratios are lower and interest coverage ratio is higher. The company’s asset turnover is higher and inventory turnover is lower than the industry average.
Part 4: Categorize the company’s overall financial performance as either better than average, average, or worse than average compared to the industry based on the ratios. The overall score is a com