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Write a short note on liquidity ratios
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LONG-TERM SOLVENCY RATIOS The long-term solvency ratio is the measurement of the company’s ability to meet its longer-term obligations. DEBT TO EQUITY RATIO The debt to equity ratio analysis the investments made by creditors, to the investments made by the company's shareholders. A low debt to equity ratio is favorable by investors as it indicates that the shareholder's investments are much higher than that of creditors. This is calculated by taking the total liabilities and dividing it by the stockholder’s equity, as a result it directly marks the risk that the company defaults on the repayment of its liabilities. Advance Auto Parts has a debt to equity ratio was declining at the start of the period, except for 2014 when took a long-term …show more content…
In 2015 the PE ratios decreased slightly from the year before since it repurchased 42,458 shares of common stock at an average price of $156.98. O’Reilly Auto Parts PE ratio decreased in 2012 due to the downturn in the economy which caused their stock prices to drop, and in 2015 they changed accounting techniques. Another reason for the share price decline common to both 2012 and 2015, was because the company repurchased total millions of shares of its common stock at the average market price at that point in time. Both companies have a positive PE ratio, and when compared side to side, O’Reilly has a higher price-earnings ratio to that of Advanced Auto parts, meaning that investors will be willing to pay more per dollar of its annual …show more content…
O’Reilly Auto Parts price-to-sales ratio dropped in 2012 due to the downturn in the stock market and again in 2016 when it acquired Bon Auto Parts. Although the price to sales ratio for both companies, when compared to each other, Advance Auto Parts has the lowest price-to-sales ratio. From an investor’s point of view, Advance Auto Parts is a better investment because it means that they are paying less for each unit of sales. SHORT SUMMARY When analyzing a company, it is always essential to analyze and compare it with the performance and ratios of other companies within the same industry with like characteristics to identify its position against the industry’s average. Advance Auto Parts appears to be managing its liquidity very well having the highest liquidity ratios in the industry. It is more liquid meaning it is in a better position than O’ Reilly Auto Parts to pay off its current liabilities if it is required. Although O’Reilly appears to be less liquid, it is not an indication that the company is struggling, since it only indicates that they do not heavily rely on its inventory to pay its short-term creditors. Additionally, their days to receivables is much lower than its competitor, who should look at reducing their ratio since their receivable are not
Another observation is that GM looks to use more debt financing that equity financing for funding their activities. The debt to equity ratio has steadily decreased over the past five years and is higher that the industry average. Also, the current and quick ratios are much lower than the industry averages. This again can pose so...
There are many factors behind the continuous growth of AutoZone (AZO), an automotive aftermarket retailer, which is showing no signs of stopping anytime soon. Over the last year, the stock has returned 35.67% compared to 58.68% and 44.20%, respectively, for Advance Auto Parts (AAP) and O’Reilly Automotive (ORLY). Clearly AutoZone is an industry-laggard, however, below are a few reasons to remain optimistic on the stock.
Current Ratio. The current ratio can indicate a company’s liquidity and is considered one of the most valuable ratios in analyzing
The report will be for the fiscal period ending May 31st, 2018. The reported EPS for the same quarter last year was $8.08. The estimated EPS forecast for the next fiscal year is $55.32 and is expected to report on September 18th, 2018. Even as the economy has improved, though, AutoZone's stock remains near its highs. The recent correction has again raised the specter of a double-dip recession, which could once again resurrect the vehicle-maintenance cycle and cause new car sales to slow. AutoZone has had relatively healthy earnings over the past several years. The company's negative shareholder equity raises some concerns, although it stems largely from huge share buybacks that AutoZone uses to return cash to shareholders rather than through a dividend. Nevertheless, the company has funded those buybacks in part through increasing debt, which makes its balance sheet uglier than its peers. If the economy remains tough, then AutoZone could get another boost up from higher consumer demand. But if a true recovery takes hold, AutoZone might not look like a perfect stock for a while to come. Stocks carry a much greater risk of short-term losses than bonds or cash (the other two major asset classes). Since World War II, Wall Street has endured six bear markets (defined as a sustained decline of more than 20% in the value of the S&P 500). As a result, it's generally not a good idea to invest a big chunk of money in stocks if
Liquidity Ratio (LR) measures the short term solvency of the business. LR measures the ability of the business enterprise to meet its short term obligation as and when they are due. The liquidity ratios are also called the short- term solvency ratios.
= == This section of the report will be composed of an interpretation of the ratios for both companies. All ratios that form the ratio analysis will be explained, and any trends from within ratios will be highlighted. OVERALL PERFORMANCE Return on Capital Employed: Net profit before tax and interest x100
During the last eight quarter, debt to assets ratio increased from 62% to 68% and the reason for that is because the total assets have decreased from $12.3 billion to $9.7 billion. Total liabilities have decreased as well from $7.6 billion to $6.6 billion. Even though both assets and liabilities decreased, assets decreased by much high percentage than liabilities did. For the last six quarters, the times interest earned ratio was negative which means that the EBIT was negative. Along with that, the EBIT is decline more and more every quarter. During the third quarter in 2011, EBIT was -$171 million and during the fourth quarter in 2012, it was -$745 million. Overall, both liquid and leverage ratios indicate the financial health of the company is declining. Company is losing assets (mostly cash) and they are not as liquid as they used to be. The assumption is that the company will be out of cash by the end of 2013.
When looking at Ann Inc.’s income statement and balance sheet after the fiscal 2015, this company seems to be doing pretty well. For the most part, a lot of their numbers are increasing from the previous years and are heading in the right direction. After an acquisition by Ascena Retail Group, Inc. a couple years ago, Ann Inc. stock become a part of Ascena group stock (ASNA:US) at the beginning of last year. At the end of January 2015, the stock price for Ascena group was $11.56. At the end of January 2016, the stock price was worth $7.58 having plunged when the Ann Inc. stock was integrated into the Ascena group’s stock. (ASNA:
This, again, makes AT&T very enticing for investors. This high ratio means AT&T is expected to produce higher earnings than the industry and Verizon. This is another advantage because it demonstrates AT&T’s ability to improve profit. With AT&T’s low leverage (as shown this far) combined with this high P/E ratio, they are very appealing to investors.
The current ratio is commonly used to indicate the company's ability to pay back its short term obligations (debt and accounts payable) with its current assets. When the ratio gets higher, the company becomes more capable of paying its obligations. A current ratio higher than one indicates that the enterprise’s
A higher ratio than its competitors suggests a strong financial position of the company and its ability to meet short-term requirements than other companies in the industry. Strong liquidity position puts the company at an advantage to fund any potential opportunity arising in the
new-car market may have stalled, but GM's profitability is still growing, thanks to smart management moves and new products that deliver higher margins. Most importantly, GM is stock is cheap! Historically, automakers have traded around 10 times earnings, maybe a little higher in good times. Times are still good right now, but GM's valuation is low at just 7.7 times its expected 2017 earnings. General Motors pays a great dividend to its investors because GM's stock valuation is low, its dividend yield is a nice 3.5%. GM has been doing well in today’s markets. The US car market is down 1.8% as of October of 2017; GM's U.S. sales are up 8.1% this year because of their new line of SUV’s, and crossovers. General Motors will and continue to be an outstanding
Solvency ratio measures the ability of a firm to pay its long term debt against the equity invested. (The Balance, 2017) I used the following ratios to assess the solvency of Engro Foods:
On the other hand (Ahmed, 2006). Said that lack of information will severely limit analysis. As ratios are based on income financial accounts which are subject to the limitations of historical cost accounting. Further to this Inflation, differing bases for valuing assets, or specific price changes which can distort inter-company comparisons and comparisons made over time. In my opinion (Delen, Kuzey and Uyar, 2013) has better concluded the discussion upon limitation by pointing out inflation and historical costing
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.