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Strang Steel - Essay Example

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Strang Steel

Gross Profit Margin: This ratio tells the profit of the firm in relation to sales, after the cost of producing the goods is deducted. Over the three years, the gross profit has been declining showing the inefficiency of Strang Steel's operations.Net Profit Margin: This ratio depicts the profit in relation to sales that a firm earns after taking account of all the expenses and taxes. It tells a firm's net income per dollar of sales. The net profit has also been declining over the three years showing that Strang Steel's sales profitability has declined. This could be attributed to the expenses rising steadily over the three years and eating out of the profits.Return on Equity: This ratio shows the return earned on the funds invested by the shareholders of the company. This ratio is also on the decline over the three years showing that the shareholders are getting less and less of their worth and the company is providing weak investment opportunities.Current Ratio: This ratio measures the firm's ability to meet short-term obligations. It shows the effectiveness of the utilization of current assets to meet short-term liabilities. Strang Steel's current ratio has declined steadily in the three years showing that the current assets are proving less and less useful in meeting the current liabilities and hence the inability of the company to pay its bills.
Quick Ratio: This ratio is more conservative in its approach to measuring a firm's liquidity position as it excludes inventories (the least liquid portion of the current assets). This ratio is between currents assets excluding stocks and current liabilities. From the year 2003 to 2004, the quick ratio has increased showing that the firm is efficiently meeting its short-term obligations but from year 2004 to 2005, the ratio has dipped showing the current assets have not been utilized in the proper manner to maintain the rising trend of the previous years.
Average Collection Period: This ratio tells us the average number of days that receivables are outstanding before being collected. From the year 2003 to year 2004, the days have risen showing that Strang Steel has a very lenient policy with regard to collecting its receivables and the debtors are taking a long time in paying their dues. Having too many receivables is not good for the money as a lot of money is tied up which could be invested elsewhere. However, from the year 2004 to 2005, the number of days has sharply declined showing the change of the management's policy regarding receivables and the debtors paying up in just 20 days.
Inventory Turnover in Days: This ratio illustrates the number of days on average before inventory is turned into accounts receivables through sales. The number of days has declined over the three years showing that Strang Steel has gotten effective each year in turning its inventory into sales.
Total Asset Turnover: This ratio shows the relationship of sales to total assets. This ratio has increas ...Show more

Summary

Gross Profit Margin: This ratio tells the profit of the firm in relation to sales, after the cost of producing the goods is deducted. Over the three years, the gross profit has been declining showing the inefficiency of Strang Steel's operations…
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