Financial Analysis Of The Jewelry Industry

Financial Analysis

A company’s current ratio measures the company’s ability to pay back its liabilities, such as debt and accounts payable, with its assets, such as cash, cash equivalents, accounts receivable, and etc. (Investopedia, para. 3, 2016). The current ratio can also provide one with a rough estimate of a company or industry’s financial health. Generally, a current ratio greater than one indicates that the company is able to pay its obligations, and that it possesses more asset values than it does liabilities values. A current ratio less than 1, on the other hand, indicates that a company currently has more

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liabilities than it does assets; thus, the company is not financially healthy. The

There is little change in current ratio throughout 2011 to 2015. The average current ratio of jewelry stores in the United States from 2011 to 2015 is 2.12, which indicates that a jewelry company in the United States generally has double the value of assets than it does value in liabilities. Jewelry companies in the nation are more than capable of paying back its liabilities with its assets. The jewelry industry as a whole, therefore, is in decent financial health. These numbers also indicate that the companies within this industry is efficient in terms of its operating cycle, or its ability to turn its products into

The gross profit margin ratio indicates the financial health of a company or industry by comparing the amount of revenue after accounting for the cost of goods sold (Investopedia, para. 1). It is calculated by dividing the gross profit, which is revenue minus cost of goods sold, by revenues (Investopedia, para. 1). An adequate gross profit margin allows a company to pay for its operating expenses, and a higher margin means that a company or industry has high profitability (Investopedia, para. 2). ________________________________________

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According to the graph, the jewelry industry has had a stable gross profit margin trend in the past five years. From 2011 to 2015, the average gross profit margin ratio was 43.06. This means that after accounting for cost of goods sold, the jewelry industry had an average of 43.06% in profit. This indicates that the jewelry industry has been in decent financial health in terms of making profit.

A key ratio in determining the efficiency of a company’s or industry’s sales is the inventory turnover ratio. The inventory turnover ratio indicates the amount of times that a