Deep Water Experts Financial Ratios Analysis and Interpretation The task on hand is to compute for the company’s financial ratios for 2010 and 2011. Following the computation, an interpretation of the ratios obtained was done to analyze the financial position of the company, and to determine the overall performance with regard to its financial management…
Overall, the picture of the company’s financial health is quite promising, and a potential for expansion seemed to be a likely opportunity to explore. I. Short-term solvency or liquidity ratios Short-term solvency or Liquidity Ratios 2010 2011 Industry 1. Cash Ratio 1.08 1.56 0.21 2. Current Ratio 2.67 3.30 1.43 3. Interval Measure 96.92 n/a 4. Net working capital to total assets 0.12 0.17 n/a 5. Quick Ratio 1.80 2.20 0.38 Liquidity refers to the “availability of resources to meet short-term cash requirements” of the company (Larson and Jensen). In the case of Deep Water Experts’ finances, it refers to its ability to generate cash and cash-like assets to pay for its expenses as they come due, at least in the short-run horizon. Cash ratio indicates the amount of cash the company has for every unit of current liability falling due. In this area, the company has performed way better than the industry ratio. In 2011, it has a cash ratio of 1.56, which means that it has 1.56 Arab Emirates Dirham (AED) to cover each unit of current liability falling due. This is way better than the industry’s 0.21 per unit of current obligation. ...
Interval Measure indicates the company’s current asset per average daily operating cost, which includes cost of goods sold, operating expenses, and interests. While no industry average is available for comparison, on its own, the company seemed to have a large enough current asset compared to its average daily operating cost. It has a very solvent position in this regard, with almost 97 AED for each unit of average daily operating cost. The company has large investment in durable or fixed assets, as can be gleaned from its working capital to total assets ratio. While working capital has increased from 2010 to 2011, in relation to total assets, it is still pretty small, with only 17 percent compared to its total investment on its assets. Finally, the company’s quick ratio further confirms its high degree of solvency. It has a quick acid ratio 1.80 in 2010, improving further to 2.20 in 2011, while the industry performance is only 0.38. This company has lesser risk of defaulting on its current obligations, as can be seen from its short-term solvency ratios. II. Long-term solvency or financial leverage ratios Long-term solvency has been defined as the “company’s long-run financial viability and its ability to cover long-term obligations” (Larson and Jensen). Further, it is concerned more on the company’s capital structure, or the composition of the company’s sources of finances to support its business activities, whether in financing, investing, or operating activities. The company’s debt to equity ratio measures the proportion of the company’s assets contributed by its owners, and those assets that are supplied by its creditors. In 2011, the company has one unit of debt for each unit of equity. In 2010, it has a ...
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(Deep Water Experts Financial Ratios Assignment Example | Topics and Well Written Essays - 1500 Words)
“Deep Water Experts Financial Ratios Assignment Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.net/finance-accounting/95919-deep-water-experts-financial-ratios.
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