Microsoft Word peachtree case study
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- LEVERAGE RATIOS Net Fixed Assets to Net Worth 1.0 0.7 0.7 0.6 0.6 0.7 Total Liabilities to Net Worth 1.7 1.2 1.4 1.2 1.2 1.2 3.7PROFITABILITY RATIOS
- Turnover Ratios
| Industry Average Company Average Company Median 6/30/2006 6/30/2005 6/30/2004 6/30/2003 6/30/2002 LIQUIDITY RATIOS Current Ratio 12.4 13.5 15.8 16.2 13.5 10.7 Quick Ratio 12.2 13.2 15.5 15.9 13.2 10.4 5.7 TURNOVER RATIOS Working Capital Turnover 4.4 3.6 3.3 3.2 3.6 4.1 Fixed Asset Turnover 10.3 12.5 13.0 13.2 12.5 5.0 7.6 LEVERAGE RATIOS Net Fixed Assets to Net Worth 1.0 0.7 0.7 0.6 0.6 0.7 Total Liabilities to Net Worth 1.7 1.2 1.4 1.2 1.2 1.2 3.7 PROFITABILITY RATIOS Pre‐tax Return on Total Assets 7.5% 53.3% 52.3% 51.9% 52.3% 56.4% 45.4% 60.6% Pre‐tax return on Equity 26.0% 160.0% 128.4% 131.9% 122.5% 128.4% 107.7% 309.6% Page 79 of 141 assets as they will have a bearing on the quality of the ratio (versus sheer magnitude. The Company’s current ratios were higher than the industry across all years of operation, indicating the strength of its balance sheet on a normalized basis. This is primarily driven by maintaining low payables and limited short‐term financing arrangements. The Company continues to generate cash and limit its need for short‐term financing. The quick ratio is a stricter, more conservative measure than the current ratio and is calculated using only the most liquid assets such as cash, cash equivalents, and trade receivables, and dividing the total by total current liabilities. The Company’s quick ratio remained as strong as the current ratio, averaging 12.2 over the past five years versus the industry current value of 1.2. This is further support that the Company is in a very strong financial position. Turnover Ratios: Turnover ratios are typically used to evaluate a firm’s ability to use its assets effectively. The ratio is calculated by dividing the firm’s sales by the appropriate asset category. Working capital, fixed asset, and total asset turnover figures were calculated for the Company and industry. Working capital turnover measures the dollars generated in sales for every dollar invested/maintained in working capital. This figure is lower than industry averages. As previously discussed, the Company’s cash position is considerably larger than industry averages which decreases this figure. The Company’s use of working capital to keep short term debt low is a good strategy to maintain a strong, financeable balance sheet, as opposed to the industry measurements, which indicate that many small businesses similar to the subject are challenged to meet ongoing financial obligations. Fixed asset turnover is calculated by dividing net sales by net fixed assets. This ratio indicates how much investments are generally used to generate the current level of sales. A higher ratio indicates a more efficient use of the assets. As previously discussed, the Company’s fixed assets are higher due to the employment of more master plumbers (and not independent contractors who own and maintain their own vehicles) and a business model that requires additional equipment. |