Martin Manufacturing Company Historical Ratios RATIOS ACTUAL 2001 ACTUAL 2002 ACTUAL 2003 INCREASE (DECREASE) industry average current ratio 1. 7 1. 8 2. 5 0. 7 1. 5 Quick Ratio 1.
0 0. 9 1. 3 0. 4 1. 2 Inventory turnover (times) 5.
2 5. 0 5. 3 0. 3 10. 2 Average collection period (days) 50.
0 55. 0 58. 0 3. 0 46.
0 Total asset turnover (times) 1. 5 1. 5 1. 6 0. 1 2. 0 Debt Ratio (%) 45.
8 54. 3 57. 0 2. 7 24. 5 Times interest earned ratio 2.
2 1. 9 1. 6 (0. 3) 2.
5 Gross profit margin (%) 27. 5 28. 0 27. 0 (1. 0) 26. 0 Net profit margin (%) 1.
1 1. 0 0. 7 (0. 4) 1.
2 Return on total assets (ROA %) 1. 7 1. 5 1. 1 (0. 4) 2.
4 Return on common equity (ROE %) 3. 1 3. 3 2. 5 (0.
8) 3. 2 Price / earning (P/E) ratio 33. 5 38. 7 34.
5 (4. 2) 43. 4 Market/ book (M/B) ratio 1. 0 1.
1 0. 9 (0. 2) 1. 2 Analysis Liquidity: The current ratio and quick ratios for the year 2003 are at 2. 5 and 1. 3, which are both higher than the industry average.
The company has enough to cover short term bills and expenses. Both the current and quick ratios are showing an upward trend compared to 2001 and 2002. The current assets decreased by $ 20, 264 to $ 1, 531, 181 and the current liabilities also decreased considerably by $255, 402 to $616, 000, a 29. 3% decline, thus making the current ratio jump to a 2.
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5. The biggest decline was seen is accounts payable which decreased by $170, 500 to $230, 000, a decline of 42. 6 %. Activity: The inventory turnover is almost half compared to the industry average, although it managed to increase by 0.
3 compared to 2002. The company needs to maintain a constant cost of goods sold and at the same time manage inventory more efficiently to maintain market competitiveness. The average collection period also increased slightly to 58 days, three days increase compared to 2002. The company needs to negotiate or persuade on efficient payment methods to customers to decrease the collection period down to industry average. The total asset turnover increased 0.
1 to 1. 6 but still failing to meet the industry standard of 2. 0. Martin Manufacturing needs to boost sales while maintaining a constant asset value to meet or exceed industry standards. Debt: The debt ratios increased by 2. 7% to 57% more than double the industry standard of 24.
5%. The long term debt increased from $700, 000 to $ 1, 165, 250 an increment of 66. 5% in the year 2002. The company is currently highly leveraged thus it needs to work on reducing long term debts and continue to increase assets. The times interest earned ratio dropped by 0. 3 to 1.
6 in the year 2003. The company could face difficulties making interest payments in case of a sales slump. Profitability: The gross profit margin is at 27% which is a percent higher than industry standards. The company is performing good and meeting industry standards in terms of cost of goods sold and sales volume.
The net income margin decreased to 0. 7% in 2003 a decrease of 0. 3% compared to 2002. The operating expenses (selling and administrative) needs to be efficiently managed to increase sales volume to reach the industry standard of 1. 2%. The return on assets decreased 0.
4% to 1. 1 % falling behind industry standards by 1. 3%. The return on common equity also fell 0. 8 % to a 2. 5% from an above industry average of 3.
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3 in 2002, making the company not very attractive for new investors. It also failed to provide industry average dividends to its current stockholders. Market: The price per earnings (P/E) ratio decreased by 4. 2 down to 34.
5. Although 34. 5 displays a strong earning potential and growth in general, it is almost 10% below industry average. The company failed to attract enough investors to meet industry average for the year 2003. The market to book (M/B) ratio declined 0.
2 from 2002 to be at 0. 9; 0. 3 below industry average. Overall the company fails to display financial stability via its historical ratios. The leverage of the company increased significantly higher than industry standards but the investors failed to get a suitable return for their increased financial risk. RATIO ANALYSIS OMG 520.
