Financial statements ratio analysis - Essay Example

The company has a relatively high turnover of more than one. A ratio of more than one means the net sales are more than the total fixed assets. This means that one dollar of fixed asset invested generates more than on dollar of sales. However, this ability decreased across the period. Current ratio highlights the capability of a company to meet its current obligations as they become due. A ratio of less than one as in the case of the company implies that the company has more obligations than the assets hence cannot meet them.

In 2013 the ability increased but still does not satisfy all the obligations. Debt to total assets ratio shows the portion of the company’s financing provided by the creditors that is it measures a company’s financial leverage. From the calculation above the company has more assets than liabilities hence it is less risky since it has a ratio of close to 0.5 implying that it has liabilities of close to 50% of its total assets. Across the period the percentage increased from 56% to 63% meaning it increased its liabilities.

Return on equity illustrates the company’s ability to generate profit or return from its shareholders’ investments. It therefore shows how efficient a company uses the shareholder money. From the ratio above the company is a bit efficient in using the shareholders’ money but the efficiency decreased in 2013 from 36% to 28%. With regards to the profit margin, the company’s ability to convert sales into profit is lower than that of the industry. Accounts receivable turnover shows that the number of times a company collects its receivables is lower than that of the company.

Further, its fixed asset turnover is also lower than that of the industry implying that it uses its fixed assets less effectively. The company also has a lower current ratio than the industry thus it has more liabilities in relation to its assets than the