Assessing the short-term liquidity, operating efficiency, capital structure and long-term solvency and profitability of the firm

Using the financial ratios calculated from the 2015 annual report of PVC Pipes, assess the short-term liquidity, operating efficiency, capital structure and long-term solvency and profitability of the firm.
Ratio 2011 2014 Current 1.52x 1.48x Quick 1.01x 0.98x Average collection period 65 days 58 days Days inventory held 36 days 28 days Days payable outstanding 61 days 47 days Cash conversion cycle 40 days 39 days Fixed asset turnover 4.91x 4.02x Total asset turnover 1.70x 1.43x Debt ratio 67.10% 63.08% Long Term debt to total capitalization 46.82% 42.51% Times interest earned (5.10x) 1.65x Fixed charge coverage (2.34x) 1.40x Cash flow adequacy 0.32x 0.87x Gross profit margin 10.10% 12.81% Operating profit margin (5.93%) 2.75% Net profit margin (4.98%) 0.91% Cash flow margin 3.84% 7.00% Return on investment (8.63%) 1.28% Return on equity (25A9%) 3.51% Cash return on assets 6.90% 9.10%
Points to consider: (Please do not simply answer the questions below – they are meant to help you focus your ratio analysis but feel free to include add’l points as appropriate.)
How does short term liquidity look and what supports your assessment? What do we see happening with the cash conversion cycle and associated components? Any implications of this from a policy perspective?

Sample Solution

ACED ESSAYS