ASSET EFFICIENCY OR TURNOVER RATIO Inventory Turnover in Days Inventory turnover in days ratio is used to measure the time frame on average between the time of purchasing the inventories and sale of merchandise (efficiency of the company in managing and selling the inventories). The industry average of electronic calculator company was 60days for inventory turnover. For Caltron Ltd., in 2001 the inventory turnover was 78days, 2002 was 109days and 2003 the turnover was 107days. It means that Caltron Ltd. has a high liquidity risk on the inventory. The high inventory turnover in days indicates that Caltron Ltd. takes longer time to sell their product thus affecting their cash positions. Account Receivable Turnover in Days …show more content…
Cash conversion cycle measures the time allotment (in days) that an organization uses to offer inventory, gather receivables and pay its accounts payable. It measures the quantity of days an organization's cash is tied up in the creation and deals procedure of its operations and the advantage it gets from installment terms from its creditors. The shorter this cycle, the more fluid the organization's working capital position is. The industry average of cash conversion cycle was inside 77days. In 2001, Caltron Ltd. cash conversion cycle was 94days, 109days out of 2002 and 94days of every 2003. It demonstrates that Caltron Ltd. is confronting issue and encountering short of cash. Taking everything into account, the longer cash conversion cycle show Caltron Ltd. neglected to screen the cash performance and show insufficiency of management. Fixed Assets …show more content…
It is one approach to measure the organization solvency over the long run. The higher the ratio demonstrates that the organization have enormous measure of gaining that can cover their advantage cost and it demonstrates that the organization has better and longer financial strengths. The industry average of times interest earned was 8.0. For Caltron Ltd., in 2001 times interest earned was 7.30. Be that as it may, in 2002, the times interest earned was 1.35 and was additionally lessened in 2003 to 1.03. This demonstrates the organization income before interest and tax can just cover one-time interest installment to the borrower when contrasted with the industry average of 8 times. The borrower would discover the organization is week in money related position and make it hard to give the organization any credits or borrowings. Cost of Borrowing The terms of 2/10, net 30 means that discount of 2 percent will be given to Caltron Ltd. if they pay the debt (account payables) within 10 days from the date of invoice or if they are paying within 30 days, they need to pay in full
company, the benefit of bringing in a 35% net income outweighs the cost of a 2% loss of interest
This ratio helps in analysing the position of the company to satisfy its short term debts within a period of one year. The higher the current ratio would be the more the company will be in position to satisfy its short term debts.
Analysing the ratio of one with the other in the industry provides for better understanding about the performance of the company in market. An investor has to make a comparative analysis before making any investment decision.
The cash realization cycle or the cash conversion cycle (CCC) measures the capital efficiency of a company. The efficiency is measured in the number of days it takes to convert the company’s activities which require cash back into cash (Morrow, 2012, page 1). In other words, it is the time it takes to convert from paying the expenses into receiving payment from customers (Morrow, 2012, page 1). It measures the time, in days, needed to sell the inventory and collect the payment.
...o renegotiate credit agreements with banks. However, the liquidity was a result of structural changes and would not bring significant effect to the company because it is unusual and infrequent (the extraordinary credits of $15 million fall in this category also). The financial report must be consistent year-by-year. A company should do the same or similar activities, especially operating activities, to generate “money” every year and recognize “money” as its profit. However, this is not the case for Harnischfeger. We are doubtful that the company will perform well in the future. The company recorded modest profit this year because it reduced operating cost not because it increased operating revenue. Since Harnischfeger did not generate its profit by operating activity, it would be too risky to predict if its stock price will reach $6.00 per share in the 1986-87.
...formance of the organization. There can be numerous ratios that can be taken out using the available financial data. It is very important for financial data to be correct for correct computation and analysis of data. The choice of ratio depends on the kind of organization and the kind of information we have.
It shows the investors that how liquid the inventory of the company is. This ratio measures and shows that how easily a company can turn its inventory or merchandise into cash. The increase in the ratio clearly indicates that the management of the company is managing its merchandise in an efficient and effective manner and it is also contribution to the profits of the company.
To collect relevant data, the annual percentage change in net income per common share diluted, net income/net revenues, the major income statement accounts to net revenues, return on stockholders’ equity, the price/earnings (P/E) ratio, and the book values per share for each year numbers were examined. In order for Sun Microsystems to see a greater return in its bottom line assets, it must consider an alternative approach in operating its organization.
Measuring the liquidity through the current ratio, with 2.74 in the year 2009,0.74 above the standard, with the decline in the following year meeting exactly the standard at 2% in the year 2010, and a steep decline in the year 2011-2012 as compared to its standard.Resulting in the decline in firm’s ability to meet its day-to-day operating expenses. The current liabilities from 2009 to 2012 have increased by 27.03 billion whereas the investments in current assets have increased just by 26.09 billion, which causes the decline in the current ratio. To cope up with this problem the company should invest more in current assets and should reduce its current liabilities.
The rising trend in the gross profit margin shows that the firm is selling its inventory at a higher percentage of profit. Likewise, higher profit margin in 2014 as compared to 2013 means that the firm is earning more profits from its sales. Similarly, the rising trend in ROCE value means that it is earning higher profits for the invested capital. Moreover, the declining trend in debtor days means that it is collecting cash quickly from debtors. The similar declining trend n creditor days shows that the firm is taking utmost advantage of the available trade credit. Next, the declining trend in gearing ratio shows a low amount of debt to equity, which means lower financial risk to its business. Finally, lower stock turnover ratio reflects good inventory management within the firm(Finch,
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
The inventory turnover decreased from 3.8 to 3.59. This is explained by the higher increase in the average inventory (37%) than the increase in cost of sales (29%) during 2005. This means that the rate at which inventory is sold is dropping
It provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms.
The current ratio and quick ratios for the year 2003 are at 2.5 and 1.3, which are both higher than the industry average. The company has enough to cover short term bills and expenses. Both the current and quick ratios are showing an upward trend compared to 2001 and 2002. The current assets decreased by $ 20,264 to $ 1,531,181 and the current liabilities also decreased considerably by $255,402 to $616,000, a 29.3% decline, thus making the current ratio jump to a 2.5. The biggest decline was seen is accounts payable which decreased by $170,500 to $230,000, a decline of 42.6 %.
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.