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Finance & Accounting
Pages 3 (753 words)
Explaining each ratio trend whether the ratio or trend indicates strength of the company; a likely weakness, threat, or emerging problem; or a satisfactory condition that management should not view as a strength or weakness …
The acid test ratio declined from 0.64 in 2011 to 0.43 in 2012. This indicates company weakness and implies that the company had fewer current assets to meet creditor’s obligation. Additionally, the inventory turnover decrease from 6.1 in 2011 to 5.2 in 2012, this indicates company weakness because more of its cash had been tied up in stocks. In addition, account receivable turnover decreased from 32.2 to 30.5 in 2012, this indicates company weakness. On the contrary, day’s on sales receivable turnover increased from 11.1 to 12.0 in 2012. This indicates company strength in colleting its account receivable within a schedule time (Stickney, 2010). On the contrary, the debt ratio increased from 28.34 to 29.54% in 2012 this indicates no concern. However, management should to reduce debt ratio because it may exposes the company to leverage risk (Ehrhardt & Brigham, 2011). In addition, times interest-earned ratio increased from 31.12 to 35.55 indicating companies’ strength. On the contrary, the rates of return on net sales increased from 6.12 to 6.21 this also indicated company strength. Connectively, the rate of return on total assets indicated company strength by increasing significantly in 2012. ...
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