Ratios QTR 1 QTR 2 QTR 3 QTR 4 Current ratio 1.68 1.35 3.09 2.04 Quick ratio 1.1
ID: 2488827 • Letter: R
Question
Ratios
QTR 1
QTR 2
QTR 3
QTR 4
Current ratio
1.68
1.35
3.09
2.04
Quick ratio
1.17
1.14
2.71
1.90
Debt/Equity
1.80
1.44
0.67
0.71
A/R turnover
N/A
2.53
1.00
0.76
A/P turnover
N/A
0.22
0.17
0.12
Inventory Turnover
N/A
0.67
0.53
0.37
EPS
0.90
0.65
1.50
1.32
Gross Profit
N/A
24.75%
7.02%
4.47%
Return on Equity
6.13%
5.16%
25.49%
18.72%
Return on Assets
4%
3.6%
15%
11%
Financial Leverage
5.88%
1.56%
10.49%
7.72%
need help explaining significant changes for each quarter.
Don't know where to start or how.
Ratios
QTR 1
QTR 2
QTR 3
QTR 4
Current ratio
1.68
1.35
3.09
2.04
Quick ratio
1.17
1.14
2.71
1.90
Debt/Equity
1.80
1.44
0.67
0.71
A/R turnover
N/A
2.53
1.00
0.76
A/P turnover
N/A
0.22
0.17
0.12
Inventory Turnover
N/A
0.67
0.53
0.37
EPS
0.90
0.65
1.50
1.32
Gross Profit
N/A
24.75%
7.02%
4.47%
Return on Equity
6.13%
5.16%
25.49%
18.72%
Return on Assets
4%
3.6%
15%
11%
Financial Leverage
5.88%
1.56%
10.49%
7.72%
Explanation / Answer
PROFITABILITY RATIOS:
Gross margin measures the direct production costs of the firm. A gross profit margin of 24.75 percent would indicate that for each dollar in sales, the firm spent 75.25 cents in direct costs to produce the good or service that the firm sold. The Gross profit margin has reduced over the quarters 2, 3, 4 and there was no profit made in the quarter 1.
Return on assets (ROA) measures how effectively the firm's assets are used to generate profits net of expenses. An ROA of 4 percent would mean that for each dollar in assets, the firm generated 4 cents in profits. This is an extremely useful measurement for any firm's management. The firm generated lower cents in the next quarter equal to 3.6 cents for each dollar in assets. This ratio has increased singificantly and unusually in the further next quarter to 15 cents per dollar of asset. In quarter 4 the ratio decreased to 11 cents per dollar of asset.
Return on equity (ROE) measures the net return per dollar invested in the firm by the owners, the common shareholders. An ROE of 6.13 percent means the firm is generating an 6.13 return per dollar of net worth. This ratio has delined in quarter 2 to 5.16 cent per dollar of net worth. This has rose significantly to 25.49 cents per dollar of net worth in Quarter 3. In Quarter 4 again there is slight decline in the ratio to 18.72 cents per dollar of net worth.
In the similar manner the other ratios can be analysed. A brief explanation of the other ratios are given as under:
ASSET UTILIZATION RATIOS:
Inventory is an important economic variable for management to monitor since dollars invested in inventory have not yet resulted in any return. Inventory is an investment, and it is important for the firm to maximize its inventory turnover. The inventory turnover ratio is used to measure this aspect of performance. Managers attempt to increase this ratio, since a higher turnover ratio indicates that the firm is going through its inventory more often due to higher sales. One of the most critical ratios that management must monitor is days sales outstanding (DSO), also known as average collection period. This represents a prime example of the use of a ratio as an internal monitoring tool. Managers strive to minimize the firm's average collection period, since dollars received from customers become immediately available for reinvestment. Periodic measurement of the DSO will “red flag” a lengthening of the firm's time to collect outstanding accounts before customers get used to taking longer to pay.
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