Answers
Answer a.
Long-term debt ratio:
Long-term debt ratio = Long-term debt/Total Assets
Increasing long term debt year on year indicates that the company will leverage its position relative to equity.
Inventory Turnover Ratio(Efficiency):
Inventory Turnover Ratio = Cost of goods sold/ Inventory
Relative to high inventory turnover ratio as compared to the industry in 2018 its indicate that company managing inventory efficiently. From 32.25 in 2016 to 62.65 in 2018, it indicates that the company's aggressiveness to change its inventory into cash.
Depreciation/Total Assets:
Total Depreciation/Total Assets
Increasing deprecation to total asset ratio indicates that the company will heavily be acquiring new assets and increasing the long term debt ratio it simplifies that company acquiring new assets using debt.
Day's sales in receivables(Efficiency):
Day's sales in receivables = No of days in period / Receivable Turnover
A relatively low day's sales in receivables compared to the industry raised questions about the company's credit and collection policies. Because of increasing day's sales in receivables from 94 in 2016 to 113 in 2018, it indicates that the company paying attention to the credit and collection policies.
Debt to Equity:
Debt to Equity =Total Debt/Total Shareholder's Equity
Profit Margin(Performance):
Profit Margin = Net Profit/Revenue
Total Asset Turnover (Efficiency):
Total Asset Turnover = Revenue/Total Assets
Current Ratio:
Current Ratio = Current Assets/ Current Liabilities
This ratio shows that current assets in relation to current liabilities. A higher ratio indicates higher liquidity. From 2016 to 2018 the company's current ratio is increasing it means to perform better and meets its short-term obligation.
Quick Ratio:
Quick Ratio = Current Assets excluding inventory or Quick Assets/ Current Liabilities
Interest Coverage Ratio:
Interest Coverage Ratio = Earning Before Interest and Taxes/Total Interest Expense.
Answer b.
Daily Cash Expenditure = 0.013 million
Current liabilities = 2.75 million
Quick Ratio = 1.028 in 2018
Quick Ratio = Current Assets/Current Liabilities (Current Assets excluding inventory means current assets only include cash, marketable securities and account receivables)
Current Asset = Quick Ratio * Current Liabilities
= 1.028 * 2.75
= 2.827 million
Defensive Interval Ratio = Current Asset/Daily Operation Expense
= 2.827/0.013 = 217.4165
Defensive Interval Ratio = 217 days
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