Rondo Company

826 Words2 Pages

Liquidity Rondo's Current Ratio is a steady at 2.0 compared to the industry average of 1.4. This indicates the company will not have a problem covering its current liabilities. Rondo's quick ratio is also steady at 1.4. The company can cover its short-term debt 1.4 times over without selling off its inventory. Rondo's performance is good in this area. Asset Management Rondo's Inventory Ratio declined to 9.5 in 2005, down from a ratio of 10 in 2003 and 2004. Rondo's sales improved year-over-year and the decline in inventory turns may be the result of carrying more inventory in response to increased sales. However, Rondo is still carrying too much inventory or the company may have excess obsolete inventory. Rondo needs to utilize just-in-time methods to improve inventory turn over. (Nice catch.) Carrying fewer inventories is required to improve efficiency and reduce cost. Rondo's performance is poor in this area. The Days Sales Outstanding (DSO) ratio for Rondo is showing improvement, but 71 days is too long to have cash due tied up, assuming that Rondo has extended Net30 or Net35 credit terms to their customers. Much more effort needs to be put into collections since it seems some customers are not paying their bills on time. Rondo's performance is poor in this area. (Could there be other issues here? Are they selling to customers who have no intention of paying them back? Will they have to write-off some receivables?) Rondo is showing steady improvement in its Fixed Assets Turnover ratio. Total Assets Turnover ratio is a measure of all assets measured against sales. Rondo is showing improvement in this area at 1.0, but is still below the industry average of 1.1. Rondo's performance is fair in this ar... ... middle of paper ... ...ant improvement. The decline in property, plant, and equipment may be hurting Rondo and contributing to overall inefficiencies. Sales are growing but profits are not. Rondo's costs are too high and need to be reduced. In addition, inventory turns are degrading and inventory reduction strategies need to be investigated. A major problem for Rondo is the number of days it takes to collect accounts receivable. Significant focus is required in this area to free up cash, which can then be used to invest in property, plant, and equipment. These problems areas contribute significantly to an inefficient operation. This inefficiency inhibits profitability at Rondo and has led to a loss of investor confidence. Rondo's sales and net income have grown year over year and if the company can improve its efficiency in the areas noted above, investor confidence can be recaptured.

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