Week 5 Assignment

Calculate the following financial ratios for Riordan Manufacturing , and compare them to its industry Current ratio Current assets / Current liabilities 14 ,555 ,092 6 ,974 ,094 2 .09 Debt ratio Debt to owner 's equity equity 12 ,476 ,927 22 ,115 ,255 0 .56 Profit margin Net profit / Sales revenue 1 ,956 ,371 50 ,823 ,685 0 .04 ROA (return on assets Net income Find an average

/E for the manufacturing industry : 57 .10 (rubber and plastics industry

Calculate the following financial ratios for Kudler Fine Foods , and compare them to its industry Current

ratio Current assets / Current liabilities 1 ,971 ,000 116 ,290 16 .95 Debt ratio Debt to owner 's equity equity 746 ,290 746 ,290 1 Profit margin Net income / Revenue 676 ,795 10 ,796 ,200 0 .06 ROA (return on assets Net income Find an average

/E for the food retail industry : 29 .00 (specialty retail industry

Summarize Riordan Manufacturing 's financial state

Financial ratios usually give an overview of a company health and its economic prospects . Particularly , the potential value of investing in the company can be shown by financial ratios . It is therefore essential to correctly interpret financial data to ensure that the company maintains a favorable position in the industry and reaches its financial objectives

The Current Ratio gives an idea of the company 's ability to pay current short-term obligations . A ratio of more than 1 suggests that it can pay most of its debts at that certain point in time . Riordan 's current ratio is 2 .09 , and this suggests (in the least ) that the company is efficient in operating its business cycle . The ability to effectively turn products into cash is a good sign of a company 's financial state

The Debt /Leverage Ratio shows how a company finances its assets - the higher the debt ratio , the larger their debt . Riordan 's Debt to Equity ratio is 0 .56 - way below the industry average of 8 .04 . Riordan 's low ratio means that it does not heavily rely on debt to finance its growth suggesting that their revenue is not volatile . Lending institutions may be more willing to lend financial assistance to the company because of this

The profit margin (which measures how much the company earns for every dollar of sales ) is useful in comparing the firm 's financial state than those in the same or similar industries . Riordan 's profit margin is 0 .04 , as opposed to the industry average of 0 .7 . This suggests that Riordan is less effective in keeping its costs low and is less profitable than other companies doing the same business

Return on assets (ROA ) reveals a company 's profitability in terms of generating revenue from the assets they have . Riordan 's ROA percentage of 0 .06 suggests that Riordan may be having difficulties converting investment into profit

Reference

Industry Index (2006 . Yahoo ! Finance . Retrieved November 16 , 2006 from http /biz .yahoo .com /p /sum_conameu .html...