Financial Ratios
QUESTION ONE: Has J&W’s liquidity position improved or worsened? Explain
The liquidity position of a firm is measured using the current ratios and the quick ratio. Relatively, both ratios have increased between the year 2015 and 2020. The current ratio increased to 2.58, and the quick percentage has risen to 1.53 from 1.9 and 0.9, respectively. The improvement in the current balance implies that the company can offset its short term obligations more conveniently. On the other hand, the quick ratio is a more conservative measure of measuring the firm’s liquidity than the current conventional balance. It knocks out the stock awaiting resale. As the ratio has improved dramatically, it indicates that the firm has better financial health; that is, it owns more quick assets than the current liabilities.
QUESTION TWO: Has J&W’s ability to manage its assets improved or worsened? Explain
Generally, the ability of a firm to manage its assets has deteriorated. Assets management capacity is showed by the inventory turnover ratios, days of inventory, fixed assets turnover and the total assets turnover. Analysis of the financial records from the year 2016 has shown most of the proportions worsening. For instance, the inventory turnover ratio has decreased to 1.8 from 7.69 between 2015 and 2020. Consequently, the percentage of the total assets has relatively dropped to 1.32. even though in absolute terms, there is an increase of 0.009, it shows in the total sales relative to the total assets as the rise is insignificance for 2020. Therefore, the company should accelerate its sales rate, such as increasing the number of credit periods.
QUESTION THREE: How has J&W’s profitability changed during the last year?
The profitability index is determined by profit margin, the operating profit margin, essential earning power, return on assets and return on equity. An increase in the ratios has positive implications on the growth rate and profitability of the firm, while the reverse is true. From the analysis of the financial statements of J&W company in the last two years, that is, 2019 and 2020, the profitability indices increased with big margins owing to the short duration of one year. The signal sent by the increasing profitability ratios implies that the investment has become more attractive and more efficient in the generation of profits by the company management for the shareholders.
QUESTION FOUR: Perform an extended DuPont analysis for J7W for 2015 and 2016. What do these results tell you?
The DuPont of a company analyses the components of the Rate of Return on Equity (ROE) to determine the individual contributions. The examination would allow the management and shareholder to know the proportions contributed by the overall ROE ratio components, thus planning the contributors appropriately. In this company, the ROE growth is accelerated mainly through the high profitability ratios rather than assets. The assets are poorly managed and attract little income to the company.
QUESTION FIVE: Perform a typical size analysis. What has happened to the composition (That is, the percentage in each category) of assets and liabilities?
The overall assets have increased from 4900 to 500 between the year 2019 and 2020, respectively. However, the size of the current assets and fixed assets decreased and raised in the respective order. The liabilities of the firm of reduced in the years considered. It shows that the company had sufficient cash to pay its bills, thus minimizing credit transactions during its operation.
QUESTION FIVE: Perform a percentage change analysis. What does this tell you about the change in profitability and asset utilization?
The percentage change analysis of the assets and profitability indices has shown a consistent increase between 2015 and 2016, indicating constant growth in the company’s size.
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