Financial Ratio Analysis Of Mytoys Company

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

Some companies have difficulty turning their inventory to cash; hence, the quick ratio measures the extent to which a company can meet its short-term liabilities without relying upon the sales of its inventory.

You current ratio is 1.70, which is a weakness. This is calculated by dividing current assets by current liabilities. This ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. Compared to year 11’s current ratio of 1.86, this indicated a slight decrease. In comparison to the industry data quartiles, this specific ratio falls below the first two quartiles of 3.1 and 2.1, but it slightly above the third quartile of 1.4. For company G, these numbers indicate a weakness, and the current ratio indicates the company would experience difficulties repaying its obligations in the short term. Improvements should be made in this area for Company G.

The financial condition of an organization represents the strategy and structure. However, the use of ratios an individual can assess a company’s abilities to function and grow in an highly competitive market. The ratios and financial statement can be complex, however, financial performance of the organization can be acquired with the execution of performing these ratios from the balance sheets and statements. Most common groups to perform these anglicizes are profit ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. With evaluating the organizations performance, these ratios are compared to the industry average over the history of the firm. When these calculation and ration reveal a deviation

a. Current ratio is known as the company’s ability to pay back their debits and obligations. The current ratio of .98 which is under 1 means the company would not be able to pay of the obligations that it owes. This shows the company is not in good standing and will cause more risk, if invested into.

The ratios that would be most important to a business include: the current ratio, debt ratio and the return on assets. The current ratio is comparing the company's ability to pay its short term obligations. In general, the higher the number, the lower the risks that a firm will face from these challenges. This is important to a business, by helping executives to ensure that they have enough liquidity to pay creditors, employees and address other challenges. ("Financial Ratios," 2011)

The current ratio is a function of current assets divided by current liabilities and it is utilized to determine the health of working capital to meet short term financial responsibilities. If the current ratio is less than 2.0 it should be concerning to the company and the ability to pay short-term liabilities is in danger. In general, a current ratio of 2.0 or better means a positive probability that all short term liabilities will be met. However, the proper use of capital can become a cause for concern if the liquidity ratio is too high, meaning there are cash and assets laying around and not being put to good use. The current ratio for Nano-Brewery is 4.47. This indicates that although paying liabilities will not be an issue, there may be better ways for Nano-Brewery to leverage their available assets.

Financial ratio analysis is not a concrete science, disagreement amongst financial analyst is present throughout industry, and therefore, some consider the practice to be part art and part science. A sound financial analysis consists of an organization’s future income and growth potential as well as a financial statement analysis. The evaluation process in itself is complex, made even more difficult factoring in the ever changing market conditions, therefore, it cannot be evaluated just on its own

In comparison to the current ratio, which was a round 2.25 and the quick ration at 1, the difference is very small. They have both been static. This shows that the company’s current assets are not dependant on the inventory. Management is in control of the finances.

The long-term creditors and short term creditors are mainly concerned about the liquidity and solvency position of the company. The increase in the debt increases the debt equity ratio of the company. Generally less investor are interested in the company with high debt. If the liquidity position of the company is not proper then the creditors faces the risk of their dues being not paid. Therefore, ratio analysis plays an utmost important role in the performance evaluation of a company.

Each of these financial ratios serve an analytical purpose to the financials of a company. The current ratio measures a company’s ability to pay off their obligations. This includes long term and short term. The acid test ratio is an indicator of whether a company has enough short term assets to cover its immediate liabilities. Times interest earned is a ratio that measures a company’s ability to meet all of its debt obligations. Profit margin is expressed as a percentage and measures how much of each dollar of a sales a company will keep in their earnings. Total asset turnover is a ratio that measures the efficiency of the use of resources within a company. It measures the ability to generate sales through the use of the company’s assets. Inventory turnover is a ratio to measure how quickly a company’s inventory is sold. It also measures how effectively investing into inventory is used within the company. Inventory turnover helps figure out if obsolete inventory is present or if pricing problems exist.

Explanation - The firm’s balance sheet shows no long-term liabilities like bonds, debentures or term loans. The capital employed is all from shareholders’ funds with small portion of short-term loans. The total fixed assets and current assets have seen to decline by 22.1 % and 12.9% respectively. Also, current liabilities and shareholder’s fund have declined by 12.6% and 15.4% respectively.

The current ratio belongs to the liquidity ratios and determines the company 's ability to pay short-term obligations (Guru Focus, 2016). The current ratio indicates if a company has enough money to face its daily obligations. According to the information given in the balance sheet in

Current ratio: Current ratio is the ratio of the current liabilities in terms of current assets of a business. This ratio determines the firm’s ability to meet out its debts over the coming period of 12 months. The firm 's ability and market liquidity to meet demands raised by creditors is indicated by this ratio. If a company 's current ratio falls within 1.5 to 2, then it indicates good short-term financial strength.

CURRENT RATIO show a company’s ability to pay its current obligations that is company’s liquidity. The current ratio position is lower for Honda at 0.33 than for Toyota at 1.22 in 2010. Honda has a large portion of receivables in assets both in trade, notes receivables and finance receivables. It has a huge portion of cash as well. This indicates the company has no problem in terms of generating a positive influx of assets. But in terms of liabilities it has a large portion of short term debt which makes almost 1/3rd of total Current liabilities. Also there is a significant portion of Long Term debt. The higher level of liabilities in the denominator reduces the overall ratio.