Summarize the trends in your company’s ratio performance over the 3 most recent years.

Part 1: Summarize the trends in your company’s ratio performance over the 3 most recent years. The company’s return on assets has increased steadily over the last 3 years. It went from 20% in the first year to 25% the third year. The company’s return on equity has increased as well, rising from 15% to 20% in the first year to 20% in the third. The positive trend in return on investments (ROI) is also evident. It has gone up from 8% in the first year to 12% in the third year. Over the past three years, liquidity ratios have remained stable at 1.5. The current ratio however has increased from 1.5 to 1.2 over the previous 3 years. Positive trends can also be seen in the debt management ratios. Long-term debt is decreasing, from 0.8 to 0.6 year 1, and total debt to equity falling from 1.2 to 1.0 year 1. In addition, the interest coverage ratio increased from 3 to 4. The asset management ratios are mixed with inventory turnover declining from 6 to 5 years in the first year to 4 in the third, and inventory turnover rising from 4 to 5 years in the second. Accounts payable turnover has also increased from 2 to 2.5 years in each year. Also, the book value per share increased by $10 from year 1, to $12 in 2013.

Part 2: Determine whether each of the ratios (listed in Part 1) indicates an increase or decrease in company performance. There has been an increase in ROA, ROE and ROI over the last 3 years. This is a positive trend in profitability ratios. Trends in liquidity ratios are also improving, with current ratio showing an increasing trend. The trend in debt management ratios is positive, with long term debt to equity decreasing, total debt increasing, and the interest coverage ratio declining. The asset management ratios exhibit a mixed trend with inventory turnover rising, total asset turnover staying constant and receivables turning down, and inventories turnover declining.

Part 3: Compare your chosen company’s ratio performance to the industry competitor ratios in the most recent year based on Appendix D. Compared to the industry competitors, the company’s ROA and ROE are higher, gross margin is lower and net margin is average. The company’s quick ratio is higher and current ratio is average. The company’s long-term debt to equity and total debt to equity ratios are lower and interest coverage ratio is higher. The company’s asset turnover is higher and inventory turnover is lower than the industry average.

Part 4: Categorize the company’s overall financial performance as either better than average, average, or worse than average compared to the industry based on the ratios. All in all, the company’s financial performance is good.

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