Some Easy Finance Question ?

Question

Industry Average Financial ratios this year and last year

This Last

year year

Liquidity

Current Ratio 1.78 1.69

Quick Ratio (Acid Test) 1.55 1.51

Activity

Inventory Turnover 7.41 7.58

Average Collection Period 22.8 23.4

Fixed Asset Turnover 1.54 1.62

Total Asset Turnover 0.89 0.91

Debt

Debt Ratio 75% 77%

Times Interest Earned 6.4 7.0

Profitability

Gross Profit Margin 24% 28%

Net Profit Margin 4.7% 4.9%

Return on Total Assets 4.6% 4.7%

Return on Equity 20.7% 33.8%

Amber Financial ratios this year and last year

This Last

year year

Liquidity

Current Ratio 1.48 1.44

Quick Ratio (Acid Test) 1.26 1.26

Activity

Inventory Turnover 11.96 15.56

Average Collection Period 13.74 11.84

Fixed Asset Turnover 2.16 2.22

Total Asset Turnover 0.99 1.05

Debt

Debt Ratio 79% 78%

Times Interest Earned 4.47 7.22

Profitability

Gross Profit Margin 22% 27%

Net Profit Margin 3.9% 6.7%

Return on Total Assets 3.8% 7.1%

Return on Equity 18.9% 32.7%

My question is quite easy,please comment on Amber's strength & weaknesses by ratio category (Liquidity, Activity, Debt, Profitability) ?

THIS IS NOT A MATH QUESTION, YOU DONT HAVE TO CALCULATE ANYTHING

Pls answer, i will provide BA.

Answer 1

Amber's basically below industry average on almost all accounts. It can't cover its near-term debt/bill commitments as fast as its peers (current & quick ratio). Amber's inventory turnover is worse, but its abiltiy to collect is better than its peers. The inventory turnover may or may not be a good thing. Basically it depends if Amber's product depreciates quickly or not, if it does and its turnover is slower than its a negative. Amber's debt ratio is higher, usually a negative factor. Profitablity is worse than peers, which could be a result of many things, but I'm sure its higher debt ratios is resulting in lower net income, reducing net profit margin. There's alot more too it, but that is the short short. Hope that helps