Mr. George Dodge, Clarkson Lumber Company is doing well but there is the issue of whether or not there is too high a risk in granting the request for the $750,000 line of credit. There are many supporting strong points but it also has some problems to work out. This is a company that has many good characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit. Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash. Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are increasing and more inventory is left over each year causing the return on sales to decrease. For 1995, it was 1.7% which is less than the average of 2.44% but is a lot higher than the bottom 25% of companies as seen in exhibit 3, which actually have negative sales return of 0.7%. Return on equity is increasing each year and at a higher rate than industry average. In 1995, it was 20.7%, greater than the average of 18.25% and close to the highest companies in exhibit 3, of 22.1% showing that the return in investment in the company is increasing, which is good for the owner. Return on assets is also decreasing and less than industry average. For example, in 1995 it was 4.7%, less than the average of 6.
This requirement makes it important to look through a majority of the return ratios, which include return on sales, return on assets, and return on equity. Additionally, investors are also interested in the ratios related to the company’s earnings, such as earnings per share (EPS) and PE ratio. Looking at return on sales, we can see that Wendy’s has a 7.27% return on sales and Bob Evans has a 1.23%, which demonstrates Wendy’s has a higher profit margin. Moreover, Wendys’ return on assets is 2.85% and Bob Evans is 1.58%. Also, Wendy’s and Bob Evan 's have return on equity ratios of 6.66% and 4.30%, respectively. All of these return ratios show that Wendy’s has a better handle on turning working capital into revenue. On the other hand, although Wendy’s return ratios are higher than Bob Evans, Bob Evans has a better performance on earnings per share and PE ratio. This is due to Bob Evans having less common stock share outstanding, which makes their earnings per share and PE ratio higher than Wendy’s. Due to the EPS being higher for Bob Evans, we would recommend that investors look towards Bob
National Bank of Canada ("NBC" or "the Bank") is tasked with the decision to review Dawson Lumber Company Limited's ("Dawson") request for an increase in its line of credit up to the amount of $10.8mm. Dawson intends to finance inventory and receivables with the line of credit. NBC must remain cognizant of the competitive landscape of the lumber industry and assess whether a focus on the retail segment is beneficial to Dawson's strategic plan. Given that Dawson is one of the region's largest borrowers, NBC must be careful in how it manages this relationship. The Bank cannot afford to turn away NBC's business. However, extending Dawson additional credit may increase Dawson's default risk and jeopardize the potential for NBC to retrieve the $4.2mm term loan it is already owed.
The Return on Capital Employed (ROCE) ratio is a profitability ratio that measures how well profits are being generated based on capital employed. RadioShack’s ROCE dropped down to -34% in 2013 in comparison to 10% in 2012. For every dollar of capital employed, RadioShack is losing $0.34. The dramatic dip stems from 2012’s positive earnings before interest and taxes (EBIT) of 155.1 million dollars to 2013’s EBIT of -344 million dollars. Capital employed is determined by subtracting current liabilities from total assets. In 2013, capital employed decreased by 79 million dollars. ROCE is used to view the long-term profitability of firms. A more in-depth trend analysis done over several years would need to be done to determine the
Clarkson Lumber is a company experiencing rapid growth but with a constant cash flow crisis. This is not an unusual confluence, but it does require some financial decision-making. Their current state of under financing makes a number of their ratios look poor.
The return on total assets (ROA) is an overall measure of profitability which measures the total effectiveness of management in generating profits with its available assets. This ratio indicates the amount of net income generated by each dollar invested in assets. The higher the firm's return on total assets, the better. Harley Davidson's return on total assets was 14.04% for 2001, 14.27% for 2000. These percentages are high and show an upward trend, this shows strong performance in this area for the past two years.
The Dupont analysis shows that every dollar of assets generates 2.44 in sales which is great considering it was already good in 2014 and 2015 and keeps improving each year, the equity multiplier is 2.516 indicating that ROE is generated through efficient use of equity and leverage of 60% that can be increased slightly to surge ROE.
For the year 2010, the return on sales was .0892. That number is calculated by dividing the net earnings by the total sales. 2010 Return on Sales = $1,069,326 / $11,991,558 and 2011 Return on Sales = $891,082 / $11,850,460.
Cash ratio – Big drop (from .35 to .087) in year 2002. In 2003 the rate grew from .087 to .460. The reason of drop in 2002 is decreased in Cash and big increase in Liabilities. The increase in 2003 occurs because of big increase in Cash and slight increase in Liabilities.
Muller, J., Welch, D., & Greene, J. (2000, September 18). Businessweek - Business News, Stock Market & Financial Advice. Businessweek - Business News, Stock Market & Financial Advice. Retrieved April 17, 2011, from http://www.businessweek.com
Northrup National Bank should extend the loan to Butler. The company will roll much of its existing debt into the new loan, without extending itself significantly further than it currently is, and at a more favorable rate. Butler has been successful in keeping current on its debts, and based on projections should have the means to start paying these debts down. From the bank’s perspective, there’s little risk involved. With the industry expected to grow so much in the next year, Butler will be in a strong position, and potentially interested in borrowing more at the end of 1991.
Ford’s impressive total asset size is $225 billion (Ford, 2015a). The fixed assets turnover ratio (FATR) illustrates the effectiveness of using fixed assets to generate sales. Ford’s average fixed asset turnover ratio for 2013-2015 is (0.33 for 2015 + 0.32 for 2014 + 0.28) / 3 = 0.31 (Ford, 2015a; Ford, 2015c). Although the number is small, one can compare Ford’s FATR with a competitor during the same period to determine which one uses their fixed assets better. GM’s average FATR for the same period was (0.28 for 2015 + 0.18 for 2014 + 0.14 for 2013) / 3 = 0.2 (GM, 2015a, GM, 2015c). Therefore, one can conclude that Ford’s usage of fixed assets was more productive than GM’s. I will give GM some credit, because of their increasing
The high-risk, cyclical nature of our business demands a strong financial base. We must retain the capital resources to meet our current commitments and make substantial investments to develop new products and new technology for the future. This objective also requires contingency planning and
...rs, setting a good trend for the corporation. They also have a very low debt-to-equity ratio, indicating that they have enough equity to easily pay off any funds acquired from creditors. As a creditor I would feel safe in lending them funds for any future projects or endeavors.
And due to this enhancement, NIKE’s gross profit margin of 46.0% was almost the same as the industry’s average of 46.20%. The higher selling price and higher margin business also led the operating profit margin and net profit margin to increase about 1% from 2013 to 2015. Normally, if the net profit margin is under 10%, it indicates that the firm is in a highly competitive business (Ventureline, 2015a). And compared to the industry’s net profit margin of 10.2% or Adidas 3.29%, Nike’s 10.7% also performed better in 2015. The Return on Total Assets (ROA) measures a firm’s ability to earn sales for every dollar invested on its assets.
The return on equity ratio is calculated by dividing the net income minus dividends by the equity. Per the Principles of Accounting textbook, “return on equities ratio enables the comparison of capital utilization among firms…this can help assess of effective the firm is in using borrowed funds”. Kinder Morgan’s return on equity ratio for December 2015 was .59%. In 2013 the ratio was 9.14% and in 2014 it was 3.01%. The return on equity ratio, like the return on assets ratio significantly declined over the past three years. One significant decrease to cause this decline is due to the deterioration of net income. Kinder Morgan’s net income from 2013 to 2015 was $1.19 billion, $1.02 billion, and $240 million successively. This sharp decline in net income can cause misplaced judgment on the decline of the debt ratios. When Kinder Morgan had a much higher income, their debt ratios were much