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Financial statement - Essay Example

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Receivables Turnover ratio. I believe that based on the RTR , the overall risk and profitability of Athletic Attic has improved from 2012 to 2013 because the ratio of turnover of receivables has increased. This means accounts receivables are collected faster in 2013 than…
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Financial statement
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The following ratios are copy pasted from the Athletic Attic Financial ment. Each ratio is explained as to profitability and risks. 2012
Receivables turnover ratio
12.02312139
11.73333333
Inventory turnover ratio
4.415584416
4.537815126
Current Ratio
14.01826484
16.77857143
Debt to equity ratio
0.252192213
0.265670403
Gross profit ratio
0.346153846
0.386363636
Return on assets
0.410938208
0.419091967
Profit margin
0.130769231
0.143181818
Asset turnover
3.142468651
2.926991518
1. Receivables Turnover ratio. I believe that based on the RTR , the overall risk and profitability of Athletic Attic has improved from 2012 to 2013 because the ratio of turnover of receivables has increased. This means accounts receivables are collected faster in 2013 than in 2012. Accounts Receivable Turnover is defined as the number of times accounts receivable turn-over in a year. A quick turn-over is needed in business because the receivables do not stay too long and is converted to cash.
2. Inventory turnover ratio. I think the ITR of 4.41% shows risk because it is lower than last year and even lower than industry average of 4.9%. (Strategos, 2014) An inventory turnover is the number times per year inventory is replaced. A quick turnover is desired in business because it is a reminder that inventories should not stay in the shelves too long. A high ratio means that sales are doing good and shows lower risk of too many unsold stocks. Inventory turn-over that is out of proportion to the industry norms is an indication of marketing problems of management like poor customer services
3. Current Ratio. Although the Current Ratio for 2013 is lower than 2012, this should not be a matter to be worried about by creditors, because the ratio is still high. This means company can still pay its maturing obligations. The accounting rule states, “the higher the ratio, the more capable the company is of paying its obligations and a ratio of below 1 means company would not be able to pay its obligations” (Accounting Coach 2014)
4. Debt to equity ratio. The D/E shows a slighter decrease in 2013. A 0.25 D/E ratio means the company has not been aggressive in financing its growth. A low D/E is favorable to stockholders because it does not use a lot of debt to increase its operations. A D/E is the “proportion of company’s asset supplied by company’s creditors vs. the amount supplied by the stockholders.”(Accounting Coach 2014).
5. Gross profit ratio. As in previous ratios, the 2013 GPR shows variance with 2012 exhibiting a lower ratio. GPR is the % of sales available for expenses and profit after the cost of goods sold is deducted, it is otherwise known as gross profit margin. I believe the average is not risky because Industry average of 33.91% is not very far from 0.3461 our case.(CSIS Market, 2014) .
6. Return on assets means the number of cents earned for every dollar of assets. A high value of ROA high means business is profitable. Comparing the 0.41% ROA to the industry average, which is 14.57% in 2014, (CSIS market, 2014), I found that ROA is lower. However, an increasing trend of ROA is observed that means company is improving.
7. Profit margin. As shown above, profit margin has decreased in 2013. Profit margin means profit per dollar sales after all expenses are deducted. There is no industry average to compare this with. So, in this, for every dollar of sales, only 13% goes profit.
8. Asset turnover. Asset turnover is higher in 2013. It is the ratio of company’s sales to its assets that means the company is efficiently using its assets to produce more revenue
Works Cited
Accounting Coach. Financial Ratios, Explanation. 2014.Web. 05 May, 214
CSI Market. Apparel, Footwear, Accessories Industry. Profitability Information & Trends.2014.
Strategos, Warehouse & Wholesale Inventory Turnover Data, 2014. Web. 05 May, 2014 
Based on the ratios calculated, write a double-spaced paper in a Microsoft Word document explaining whether you think overall risk and profitability improved for The Athletic Attic from 2012 to 2013 based on your analysis of the ratios and the information in the text on interpreting the ratios. You can separately state whether you believe each of the eight ratios improved or worsened between 2012 and 2013, and then you can give your overall opinion on the change in risk and profitability. Please bring this document to class to turn in on paper on Monday, May 5. I will not accept this essay electronically. Read More
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