Ratio Analysis

Tamara C. HarasewychComputer Applications and

Accounting Final ProjectSpring 2000

Liquidity Ratios CURRENT 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.

QUICK RATIO• 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 RatiosDebt 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 Return on Sales

Return on Assets

Return on Equity

Division A 0% -1% -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 RatiosAverage Collection

Period

• 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

• 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 ChartRatio Comparisons

-10%

0%

10%

20%

30%

40%

50%

Div. ADiv. BDiv. C

Return on Sales

Return on Assets

Return on Equity