Current ratio is a liquidity ratio that is used to establish how liquid a company is. In the analysis of current ratio, the trend seems to be inclining as it increased from 0.9 to 1.4827. Though the company has not yet satisfied the rule of thumb of 2:1. However, through the current ratio, the company is able to finance its current liabilities. The reason for having the current ratio increase is due to the fact that the current assets also increased hence they were able to finance the current liabilities.
Quick ratio is also another liquidity ratio that is concerned with identifying how sufficient current assets are able to finance the current liabilities. For Orange Company, the trend from 2012 to 2013 seems to be increasing from 0.361538 to 0.86207. This is a positive outcome as it establishes that the current assets available are able to finance the current liabilities.
Receivable turnover is used to determine the number of days that a company takes to receive payments from its debtors. From the analysis, it proves that the receivables turnover increased from 2012 (0.1423 times) to 2013 (0.1433 times). In 2013, the company took 2,512 days while in 2012, it took 2,230 days. The receivable turnover times should increase so as to reduce the number of days that would take to collect the debt. By so doing, this means that Orange company will be able to clear its outstanding debt with its creditors.
Inventory turnover reduced from 14.85714 times in 2012 to 7.5 times in 2013. This is a discouraging trend as the turnover should increase so as to reduce on the number of days that it would take to clear off the stock. In 2012, it took 24 days to clear the available stock while in 2013, it took 40 days to clear the stock. In order to improve on the inventory turnover, Orange Company should ensure that it takes fewer days to clear on the available stock so as to also increase on its profits.
There was a slight increase in profits by 6.25%. This was due to an incline in profits from 6.0% in 2012 to 6.4% in 2013. In order for the company to improve tremendously on the profit margin, then, the Orange Company has to ensure that it improves on its net sales.
In the analysis that has been done on the financial ratios, the asset turnover increased by 0.009448 from 1.87143 in 2012 to 1.880878 in 2013. This is an improvement for the company as it shows for every $1, the company generated $1.880878 from the sales. Though, the company has performed fairly well in the asset turn over, it should improve on its sales so as to increase on its asset turnover.
Return on assets.
The return on asset improved from 0.112143 in 2012 to 0.120376 in 2013 which was an improvement of 0.008233. This is done by making a comparison between the net income and the average total assets. This shows that for every one asset, 0.120376 went to the net income in 2013. The company should strive to increase on its return on assets more.
Return on equity.
This ratio tends to compare the net income with the shareholders equity. The trend seems to be a positive one because there was an increase from 0.089714 in 2012 to 0.102949 in 2013. The increase was by 0.013239. This shows that for every 100% of the net shareholders equity, 10.29% was generated by the net income in the year 2013.
Price earning per share.
This ratio is used in valuing a company's market price to the earnings per share. This ratio shows the price that the investor or business is expected to earn when investing in the available shares. For this case, $3.9 was projected to be earned on the investment of shares in 2012 while in 2013, the projection was at $ 2.002. This shows that there was a slight decrease in the earnings that the investors acquired by 1.897947.
Debt to assets ratio explains the percentages of assets that were financed by creditors, debt or liabilities. In this instant, 37.5% of the total assets were financed by the total liabilities in 2012 while in 2013 41.5% of the total assets were financed by the total liabilities. Through the analysis, it shows that the debt ratio increased by 4.0361%. Hence, in 2013, the creditors financed more assets as compared to 2012.
Times interest earned
When debt is paid by Orange Company, the amount is usually higher than the borrowed amount. This is because the company has to repay the debt with some interest. For instance, the company was obligated to pay 8.566667 as interest to the financing institution in2012 and 8.230769 in 2013. This shows that the companys interest reduced as it paid less in 2013. For the Orange Company to borrow loan, it should consider getting loan from a financial institution that offers loan at a low interest.
To conclude, Orange Company needs to improve on its overall performance though it tends to show some slight improvements. I would recommend that for the companys performance to increase, it should analyze on its performance and put on more effort to improve on issues to do with the assets, sales which would have an effect on the profits.
McLeay, S., & Riccaboni, A. (2001). Contemporary issues in accounting regulation. Boston: Kluwer Academic Publishers.
Anderson, T. J. (2013). The value of debt: How to manage both sides of a balance sheet to maximize wealth.
Need a paper on the same topic?
We will write it for you from scratch!
If you are the original author of this essay and no longer wish to have it published on the SpeedyPaper website, please click below to request its removal:
- Why Reading is Important for Second Language Learning
- Ford versus Toyota
- Humanitarian Intervention
- Design research
- Education Issues for Children with Learning Disabilities
- Kramer Pharmaceuticals - Harvard Business case study
- Good parents, Bad Results
- How Has Globalization Impacted Native American Religions
- Family Systems Approach to Addictions
- A Comparison Study of the IFRS Vs. The Swedish GAAP
- Hedging research
- Organizational commitments and application of financial statement analysis techniques to CNN