Running Head: HUFFMAN TRUCKING COMPANY, RATIO ANALYSIS
Huffman trucking company, ratio analysis
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HUFFMAN TRUCKING COMPANY, RATIO ANALYSIS
Ballabanis (2015), states that financial ratios are important tools used to interpret
financial statements useful either inside or outside the entity. Different users of the financial
statements will achieve different objectives depending on the nature of the ratio(s) as well as the
application. Furthermore, the analysis of a Huffman trucking company’s strong and weak areas
can be known through ratio computations, as well as any opportunity that may need to be utilized
as well as the impending dangers or threats. Some other times this company will need to
compare itself with other companies in the same industry to see if it has gained a competitive
advantage over its nearest rivals. Alternatively, Huffman will need to carry out a trend analysis
to check its performance behavior over a period of time.
Various classes of ratios will depict distinct meanings from others, for instance the
liquidity ratios when used evaluates how the company is prepared to settle its short term debts
using the current assets available. Enough liquid means that the Huffman is well prepared and
better positioned to cater for uncertainties that may arise in the short run. Users like debt holders
and suppliers will be concerned with the promises made to them by Huffman to settle their debts.
On the other hand, profitability ratios indicate how well or bad the company is yielding
returns in the form of profits from its operations, an interest of the shareholders and investors to
try to check whether the undertaking good for the company. Solvency ratios are significant in
that they look at the long term creditworthy by analyzing the position of Huffman as it relates to
the debt control. Banks and the other financiers are interested it this aspect, according to Young
(2014)
The financial ratios indicated (refer to the excel workbook) show measurements of performance
for Huffman Trucking Company over a period of two years, that is 2010 and 2011. The
comparison for profitability ratios indicates that the company has regressed from year 2010 to
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HUFFMAN TRUCKING COMPANY, RATIO ANALYSIS
year 2012. It can be clearly seen that net profit margin decline from 5.73% (2010) to 5.33%
(2011), while the return on asset ratio went down from 22.87% to 22.64% in the progressive
years. This shows that the owners of Huffman are not very secure due to declining profits.
The liquidity position of the company is comparatively good when compared to the
standard ratios. The current and quick ratios, for instance indicate that Huffman has enough
convertible current asset to provide cover to any anticipated current liabilities. The number of
times collections are made has increased considerably translating to availability of more cash.
Comparing the long term debt analysis, we learn that trend wise Huffman Trucking is showing a
considerable improvement which makes it easier for the financiers to lend. The debt to assets
ratio reduced from 64% to 62% from year 2010 to 2011 respectively showing that a considerable
debt reduction was recorded between the years, whereas the Term interest percentage increment
from 11614% to 20283% gives the long-term financiers assurances that they will continue
receiving interest from their lend loans.
There is an indication from the horizontal analysis that the revenues and expenses have
grown over the years, with a net effect of even increased profits by a 7% margin. The general
comparisons of total assets also indicates a growth, thus it is clear that the net worth of Huffman
Trucking is higher while this trend may continue. Similarly, there is an indication of
improvement from the vertical analysis of both balance sheet items in comparison with total
assets as well as the income statement items comparing with the revenues for the respective
years. The management must however check items which may generally leave the company
exposed and not able to progress in terms of profits, which stands highest as the main objective
(Baldamus, 2013).
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HUFFMAN TRUCKING COMPANY, RATIO ANALYSIS
References
Balabanis, G. (2015). Matching Service Mixes to Internal and External Contingencies in Export
Intermediary Firms: Profitability and Efficiency Implications. In Assessing the Different Roles
of Marketing Theory and Practice in the Jaws of Economic Uncertainty (pp. 123-123). Springer
International Publishing.
Baldamus, W. (Ed.). (2013). Efficiency and effort: An analysis of industrial administration.
Routledge.
Young, J. (2014). Financial Ratio and Multiple Regression Analysis of Corporate Mergers.
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