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Finance & Accounting
Pages 3 (753 words)
A ratio analysis of Honest Tea is illustrated below: 1999 Jun-00 Gross margin 28.46% 36.93% Net margin -71.74% -36.23% Return on assets (ROA) -0.78 -1.70 Return on equity (ROE) -0.97 -0.19 Working capital 742285 811327 Current ratio 4.41 5.92 Quick acid 3.04 3.29 Inventory turnover 2.50 0.83 Debt ratio 0.19 0.12 Debt to equity 0.24 0.14 The gross margin and net margin of the company during 1999 and during the 2nd quarter of 2000 were extremely bad.
This implies that the firm’s current assets exceed its current liabilities. The current ratio and quick acid ratio of the company after the 2nd quarter of 2000 were 5.92 and 3.29. Both ratios are outstanding due to the fact that they exceed the 1.0 threshold (Garrison & Noreen, 2003). Honest Tea is in a good position to pay off its short term debt. During 1999 the firm was able to turn its inventory 2.50 times during the year. The debt ratio and debt to equity ratio of the company demonstrate that the firm has not incurred in long term financing options. Case study analysis questions: 1) Does the Tea market appear to be attractive as of the year 2000? Explain by referencing relevant metrics and information. The Tea market appears to be attractive for the year 2000. Tea is one of the fastest growing drinks in the United States due to its unique attributes. The competition in the tea market is not as severe as the competition in other segments of the drink industry such as in the carbonated soda sector in which Coca Cola and Pepsi dominate. As of 1999 there were 2,595,500 gallons of tea consumed by the American public or 9.5 gallons per capita. 2) How is Honest Tea doing financially and otherwise? Discuss by referencing relevant metrics and other information. ...
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