Fnt1 Essay Example
1. & 2. For Company G, We will be assessing each ratio as a: strength, no concern or as a weakness. A. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Company G has a current ratio of 1.8 for year 12. When the current ratio of 1.8 for year 12 is compared to year 11’s ratio of 1.86, we see this ratio has declined slightly. When compared to the industry quartiles this ratio falls below the first quartile of 3.1, falls below the second quartile of 2.1, and above the third quartile of 1.4. This is an area of weakness for Company G and shows some reason to be concerned. They could be investing the excess money into other areas. Too much cash on hand is not a bad thing, but it is if you don’t do anything with it. B. Acid Test Ratio: A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory (Investopedia). Basically a more stringent test of the current ratio. Company G has an acid test ratio of .44 for year 12. When the current ratio of .44 for year 12 is compared to year 11’s ratio of .64, we see this ratio has declined slightly. When compared to the industry quartiles this ratio falls below the first quartile of 1.6, falls below the second quartile of .9, and below the third quartile of .6. This ratio indicates there is great reason to be concerned with Company G’s ability to cover its immediate liabilities. This is an area of weakness. C. Inventory Turnover: A ratio showing how many times a company's inventory is sold and replaced over a period. Our sheet shows a turnover for year 12 of 5.2 days. This is a quick turnover and should be assessed as a strength. When the current turnover rate is 5.2 for year 12 is compared to year 11’s rate of 6.1, we see this turnover rate has declined slightly. When compared to the industry quartiles this rate falls below the first quartile of 13, falls below the second quartile of 10.3,