Ratio Analysis essay


Theratio analysis of Strong Lite Company has revealed that theorganization is more liquid than its peers in the market are.However, the liquidity assumes a declining trend from the year 2006to 2008. Regarding raw materials turnover, the company has adecreasing trend from the year 2006 to 2008. On average, the companyhas a lower ratio of raw material turnover than the average for theindustry. Similarly, the company has less work in progress rate thanthe average in the sector indicating that the firm is losingefficiency in using its work in progress. A similar scenario of adeclining efficiency is in the company’s finished goods, theAccounts Receivables and the Accounts payables turnover. Regardingthe cash conversion cycle, the company has a lower rate than theindustry. Besides, the rate of Strong Lite’s rate of cashconversion has declined over the years(Strong Lite Ltd).

Thecompany’s fixed assets turnover indicates an increasing rate in thelast three years. However, at a lower rate than the industry showingthat the company utilizes its assets. The debt to totalcapitalization rate has increased over the years indicating that thefirm has a high reliance on debt and may become insolvent since itsdebt to capitalization rate is greater than that of the market. Thecash flow coverage ratio of the company has increased over the yearsabove the industry average. It is an indicator that the Company haslower sales and maintains a lot of cash that is not put to any use.

Regardingprofitability, the company’s gross profit margin has assumed anincreasing trend. However, the abnormal rate of increase in the year2007-2008 indicates that the company had high operational costs. Theoperating profit margin has remained constant over the three yearsand is way above the industry average confirming the high operationalcosts of the company. The net profit margin has declined over theperiod to levels below the industry average. Similar is the return onassets and return on equity indicating that the company is on amission to make losses.