Financial Analysis Of Real & Virtual Companies
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Financial Analysis of Virtual and Real Companies
ZeroMillion.com, 2006, states
The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:
Current Ratio = Total Current Assets / Total Current Liabilities
A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort
Huffman Trucking and J B Hunt have a current ratio of 1:1 while Knight Transportation has a current ratio of 3.6:1. The current assets for Huffman Trucking and J B Hunt are almost the same as their current liabilities. Knight Transportation has current assets of $96,070 and current liabilities of $26,154. Knight should not experience any difficulty paying their obligations. Huffman Trucking and J B Hunt should look at other methods to increase their current assets or decrease their current liabilities.
I was unable to calculate the current ratio for McBride Financial because they do not have a balance sheet listed on their website. The current ratio for Countrywide Financial is 0.3:1; which is below the minimum acceptable of 1:1. The current liabilities for Countrywide Financial almost four times their current assets; they need to determine what is causing their short/current long-term debt and other current liabilities and find a way to decrease them. As a lender, they should know the importance of a strong current ratio is necessary when obtaining outside financing. The current ratio for Accredited Home Lenders is 0.5:1; which is below the acceptable minimum. Accredited Home Lenders is purchasing almost of their assets through debt instead of with equity, which is decreasing their current ratio.
The current ratio for Kudler Fine Foods is 17:1 and they should not have any difficulty paying their obligations. Kudler should consider investing their cash into long-term assets. Ruddick Corp. has a current ratio of 1.6:1; which is lower than the generally accepted ratio of 2:1. Their accounts payable are almost double their net receivables. Ruddick may want to consider converting some long-term assets to pay off their accounts payable and increase their current ratio to a more acceptable level. Frutarom Industries has a current ratio of 1.1:1; which is the minimum accepted ratio. Frutarom Industries had bank credit and loans which are almost half of the current assets. If Frutarom Industries converted the bank credit and loans into long-term payables, they could increase their current ratio to the generally accepted ratio of 2:1.
Riordan Manufacturing has a current ratio of 2:1 in 2005; which although acceptable, decreased from 2.4 in 2004. Dow Chemical has a current ratio of 1.6:1, which has increased from 1.5:1 from the previous year. West Pharmaceutical Services has a current ratio of 1.9:1 for the past two years. These companies meet the generally accepted ratio of 2:1 and should not experience any difficulty paying their obligations.
BIZWIZ Consulting, 2006, states:
Debt Ratio = liabilities / assets
The debt ratio is also known as the debt to equity ratio or financial leverage ratio.
The debt ratio shows the reliance on debt financing. A high debt ratio is unfavourable because it indicates that the company is already overburdened with debt.
Huffman Trucking has a debt ratio of 70%; J B Hunt has a debt ratio of 48% and Knight Transportation has a debt ratio of 25%. When the debt ratio increases, the company is purchasing additional assets through additional debt. Huffman has a debt ratio below the industry average and should lower their debt ratio by purchasing the assets with cash.
I was unable to determine the debt ratio for McBride Financial Services because I do not have a balance sheet. Countrywide Financial has a debt ratio of 93% and Accredited Home Lenders has a debt ratio of 94%; and should increases their sales in order to reduce their debt.
Kudler Fine Foods has a debt ratio of 28%; which is very good and they should not experience difficulty paying their current obligations. Ruddick Corp. has a debt ratio of 54% and should have no problems paying their current obligations. Frutarom Industries has a debt ratio of 63%; and should focus on increasing their sales to pay off the debt. Kudler Fine Foods has a debt ratio that is above the industry standard.
Riordan Manufacturing has a 36% debt ratio for 2005 and 2004, and is currently above the industry standard. They should not have any difficulty paying their current debt because their assets are almost three times it. Dow Chemical has a 67% debt ratio for 2005, which decreased from 73% in 2004. Dow decreased their debt by 9%; while their assets stayed almost the same. Dow may have been able to pay off their liabilities because their net profit increased by 68%. West Pharmaceutical Services has a current ratio of 60% in 2005; and 54% in 2004. The change is because their total liabilities increased by 37% while their total assets increased by 25% and their total sales increased by 29%.
The net profit margin ratio, according to ZeroMillion.com, 2006, states:
This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare the companys “return on sales” with the performance of other companies in the industry. It is calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:
Net Profit Margin Ratio = Net Profit Before Tax / Net Sales
The profit margin for Huffman Trucking is 6%; which is within the industry standard range. The profit margin for J B Hunt is 4% and Knight Transportation has a profit margin of 10%, which is above the industry standard. Knight Transportation has a lower debt ratio which increased their profit margin.
McBride Financial Services has a projected profit margin of -30%; based on the Pro Forma Statement. It is hard to develop an accurate assessment of McBride Financial Services because the only financial data is projected and I was unable to locate information regarding a balance sheet. McBride Financial Services needs to seriously look at why their expenses