1. Ratio Analysis of Chapin Manufacturing Corp. By Jennifer Moorehouse

2. Ratios

4. Current Ratio (Current Assets/Current Liabilities) CorporateCorporate Current Ratio: 2.5:1  This measures the firm’s ability to pay current debt.  Overall this is a good ratio, ideally it should be 2:1.  Division B is slightly high and may indicate that this division is not using its assets wisely. Division B Quick Ratio (“Quick” Assets/Current Liabilities) CorporateCorporate Quick Ratio: 1.5:1  This test is stricter than the current ratio test.  Ideally this ratio should be 1:1.  This ratio is a bit high for all three divisions and again may indicate that assets are not being used wisely.

5. Ratio Of Debt to Assets (Liabilities/Assets) CorporateCorporate Ratio of Debt to Assets: 29%  This ratio is most important for loan officers. If you lend money to a company, your main concern is getting it back. This ratio measures the likelihood of getting your money back.  The lower the ratio the more likely you are to get your money back.  This ratio is relatively low therefore if you might be more likely to offer this company a loan.  This ratio is also related to the ratio of equity to assets which is 71% in this case. Notice that the two ratios add to 100%  These two ratios determine the leverage of the company. Due to the fact that the debt is low, this company does not have high leverage.

6. CorporateCorporate Return on Sales: 12%  This ratio shows, for every dollar of revenue, how much is left over as profit.  In this case the company is earning $0.12 for every dollar of revenue earned.  Both Division A and B earn about $0.09 for every dollar of revenue earned. While Division C is doing the best making $0.16 for every dollar of revenue earned.Division AB CorporateCorporate Return on Assets: 23%  This ratio includes both the Return on Sales (profit margin) as well as the Asset Turnover.  The asset turnover measures how quickly we turn our assets to revenue.  The return on Assets ratio measures how efficiently the company utilizes its assets to create sales.  This ratio should be compared to industry data to determine the performance of this company. Return on Sales (Income+Interest Expense/Sales) Return on Assets (Return on Sales X Asset Turnover)

7. CorporateCorporate Return on Equity: 30%  This ratio measures the risk and reward.  Higher the risk, higher the potential reward. CorporateCorporate Average Collection Period: 36 days  This ratio gives a sense of how long a payment takes to receive from a sale made on credit.  Generally this process should take about 30 days. This ratio is slightly high.  Division A’s collection period is very high which poses 2 main problems: Division A  Your business can not pay its bills.  You are less likely to be paid. Return on Equity (Net Income/ Stockholders Equity) Average Collection Period (Accounts Receivable/Avg Daily Sales)

8. Average Days Supply in Inventory (Inventory/Daily Cost of Goods Sold) CorporateCorporate Average Days Supply in Inventory: 63 days  This ratio determines the amount of days supply in inventory. In other words, the inventory for this corporation will be gone in an average of 63 days without replacing.  This ratio is measured against the industry ratio. Therefore in order to determine if this is a good ratio we would have to compare it to the ratio of other manufacturing corps.  Division A is slightly high in comparison to the other divisions. This is problematic for the following reasons: Division A  It can be a sign that the product is not selling and eventually will become obsolete.  There is too much inventory in the store, eventually the store will run out of space and additional money will have to be spent on storage space.