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Financial Analysis of Ryan Boot Company - Research Paper Example

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Financial Analysis of Ryan Boot Company

This ratio is to be analyzed in comparison with the profit margin. Since Ryan is putting more assets for generating lesser profit margin this ratio is very less as compared to that of the industry. Ryan would be able to increase the profit margin by lowering the total assets or increasing the profit margin. This area needs immediate attention.
It is observed that this ratio is slightly higher than that of the industry. When the ROE is higher and ROA is lower, it implies that the company is trading mainly on debt funds. This implies that the debt ratio for the company is high. This is observed from the balance sheet of the company. It is seen from the balance sheet that while the long term debt of the company stands at 2,500,000 the current liabilities are 2,750,000. Although there is no harm in carrying larger current liabilities since they are non-interest bearing, it is important that the company maintains proper short term liquidity position to meet these liabilities as and when they become due. On one side although this is an advantageous position for the company from another angle this points towards a weakness for the company.
This ratio is lower than that of the industry and shows a weakness for the company. This implies that either the company is too liberal in its credit policies to augment its credit sales or the company is following inefficient collection policies. If Ryan is in the habit of offering higher credit periods to its customers the company has to have a close look into the products as to the necessity for offering such higher credit terms. On the other hand if the collection policies of the company are inefficient and weak they need to be tightened so that this ratio improves. Otherwise the company will incur losses on account of more bad debts.
5. Inventory Turnover:
Since this ratio is comparable to the industry it can be considered as optimum.
6. Fixed Assets Turnover:
This ratio is in line with that of the industry and the company should try to maintain this ratio.
7. Total Assets Turnover:
This ratio is found to be lower than that of the industry and therefore represents a weakness for the company. It is for the company to reduce its total assets base so that there will be increased profitability and this ratio can be improved to be in line with the industry. The weakness can be found in Accounts Receivable which is much higher as compared to the industry standards. Ryan should take immediate steps to control the excess exposure on accounts receivable.
8. Current Ratio:
Ryan should maintain its current assets and current liabilities so that this ratio continues to be in line with that of the industry standards.
9. Quick Ratio:
The Company is maintaining this ratio in line with the industry and therefore can be considered as optimum.
10. Debt to Total Assets:
It is observed that this ratio is much higher than that of th ...Show more

Summary

The ratio for the company is lower than the industry although the difference is not large. However the company would be able to raise the profit margin by a judicious employment of its assets. This is evident from the analysis of the Total Assets Turnover which is lower for the company as compared to the industry…
Author : donnie17
Financial Analysis of Ryan Boot Company essay example
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