Ratio Analysis
Tamara C. Harasewych
Computer Applications and
Accounting Final Project
Spring 2000
Liquidity Ratios
CURRENT RATIO
QUICK RATIO
•
•
•
•
•
•
Division A: 1.64 to 1
Division B: 1.98 to 1
Division C: 1.98 to 1
Consolidated: 1.88 to 1
Division A’s ratio is a bit
low when taking into
account the 2:1 rule of
thumb. On the other hand,
Divisions B, C and the
company as a whole had
good outcomes close to 2.
•
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Division A: 1.09 to 1
Division B: 1.11 to 1
Division C: 1.07 to 1
Consolidated: 1.09 to 1
The rule of thumb for
quick ratios is 1:1.
Therefore, all of the
divisions were fairly close
to the optimal ratio while
Division C proved to be
the strongest with a ratio
of 1.07 to 1.
Long Term Solvency
Ratios
Debt Ratio
Division A: 56%
Division B: 49%
Division C: 49.6%
Consolidated: 51%
•
Division A and the corporation as a whole (as seen through
the consolidated ratio) did not have a good debt to asset
outcome because their ratios were over 50 percent and
their debt was too high. In contrast, Divisions B and C’s
ratios were under the 50 percent mark and therefore proved
to be less risky with higher equity.
•
For a link to the Excel Ratio worksheet, click here
Profitability Ratios
Digimon
Division A
Return Return on
on Sales
Assets
0%
-1%
Return on
Equity
-2%
Division B
4%
8%
16%
Division C
9.8%
20%
40%
Consolidated
163%
332%
683%
All of the divisions exhibited weak returns on sales, yet the company as a whole prospered in all of the profitability
calculations.
All of the divisions’ outcomes for their return on assets were low and Division A’s was the weakest.
Division A had a very low return on equity, while the divisions B and C had higher outcomes. Overall, the returns were
low.
Net income for large companies is typically greater than Net Income for smaller entities or divisions, but that does not
necessarily mean that the larger company outperformed the smaller entity.
Asset Management
Ratios
Average Collection
Period
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•
•
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Division A: 47
Division B: 46
Division C: 42
Consolidated: 45
The average collection
period is pretty good for all
of the divisions and for the
company as a whole.
Average Days of
Inventory
•
•
•
•
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Division A: 61
Division B: 90
Division C: 94
Consolidated: 83
Division A’s inventory is
good, while for the entire
company, Divisions B and
C, the average days of
inventory are increased.
Ratio Chart
Ratio Comparisons
50%
40%
30%
Div. A
20%
Div. B
10%
Div. C
0%
-10%
Return on
Sales
Return on
Assets
Return on
Equity