Accounting 1001 Presentation of Ratios for Final Project Presented by: Cori Sylvia 12:30 Section May 2001 Final Project Dr Hiltebeitel

Definition of Terms The Short Term Liquidity Ratios: The Current Ratio and the Quick Ratio demonstrate a company’s ability to pay debt in the future, their ability to survive in the future. The Long Term Solvency Ratios: The Debt to Asset Ratio measures a companies riskiness, their ability to survive in the future. Profitability Ratios: These ratios include Return on Sales, Return on Assets, and Return on Equity. “Net Income and Sales are popular measures of an entity's performance. However, it is often better to look at sales and income performance relative to the assets or equity management had at its disposal. Profitability ratios are especially fruitful if you wish to compare entities of different sizes. Net Income for large companies is typically greater than Net Income for smaller companies, but that does not necessarily mean that the larger company outperformed the smaller entity.” (Dr. Hiltebeitel, Important Financial Statement Ratios)

Division A Strengths and Weaknesses  Both the Current Assets (2.5 to 1) and the Quick Assets (1.5 to 1) seem to be strong. The rule of thumb for Current Assets is that it should be about (2 to 1) and for Quick Assets it should be about (1 to 1). Short term liquidity looks very good.  The Debt Ratio is approximately 41%. This means that the owners contributed 41% and the creditors contributed 59% (Equity Ratio). Long term solvency is good.  The Return of Sales Ratio is 6%. The Return on Assets Ratio is 13%. The Return on Equity Ratio is 22%. The Return on Sales Ratio is OK. The Return on Assets seems to be a little low in comparison to Division B. The Return on Equity Ratio is strong. All and all the Profitability Ratios seem OK.

Division B Strengths and Weaknesses  Both the Current Assets (3.4 to 1) and the Quick Assets (2.0 to 1) seem to be very strong, more so than Division A. The rule of thumb for Current Assets is that it should be about (2 to 1) and for Quick Assets it should be about (1 to 1). Short term liquidity looks great.  The Debt Ratio is approximately 22%. This means that the owners contributed 22% and the creditors contributed 78% (Equity Ratio). Long term solvency looks great also.  The Return of Sales Ratio is 9%. The Return on Assets Ratio is 17%. The Return on Equity Ratio is 21%. The Return on Sales ration seems fairly strong, stronger than both Divisions A and C. The Return on Assets Ration seems good too, also higher than Divisions A and C. The Return on Equity Ratio is strong, once again more so than Division A. All and all the Profitability Ratios seem very good.  Division A seems to be the strongest Division.

Division C Strengths and Weaknesses *Please note that Division C’s ratios are exactly the same as Division A because to “make up” my numbers for Division C, I took a percentage of Division A and added it to Division A.

The Company as a Whole Strengths and Weaknesses  Both the Current Assets (2.7 to 1) and the Quick Assets (1.6 to 1) seem to be strong. The rule of thumb for Current Assets is that it should be about (2 to 1) and for Quick Assets it should be about (1 to 1). Short term liquidity looks very good.  The Debt Ratio is approximately 34%. This means that the owners contributed 34% and the creditors contributed 56% (Equity Ratio). Long term solvency is good.  The Return of Sales Ratio is 7%. The Return on Assets Ratio is 14%. The Return on Equity Ratio is 22%. The Return on Sales Ratio is good. The Return on Assets seems to be good also. The Return on Equity Ratio is also strong. All and all the Profitability Ratios seem good for this company.

Further Analysis of Ratios: Return of Sales, Return of Assets, Return on Equity Division ADivision BDivision C Return on Sales 6%9%6% Return on Assets 13%17%13% Return on Equity 22%21%22%

Chart: Return of Sales, Return of Assets, Return on Equity

Additional Note  Please note that it is always a good idea to check back to the previous 2 years of a company and also check the industry standard when analyzing any company