Ratios assignment Example | Topics and Well Written Essays - 750 words

Ratios - Assignment Example Average collection period can also be referred to as the number of days the sales are tied up in the accounts receivable. Thus, the average sales per day for the four years have been increasing. A snapshot on the yearly collection period, the year 20X1’s average is half the year 20X2’s average; this is a ratio of 1:2 associated with the increase in net sales by the same ratio. Inventory turnover measures the rate by which the inventory is used annually. From the computation, the rate at which inventory is used annually is 4, which is equal in the four years. This implies that inventory is used equally across the years. Current ratio measures solvency. This is the ratio between current assets and current liabilities. In the year 20X1, they current ratio is 3.333 which implies that for every one dollar of the current liabilities, the company has $3.333 in the current assets. For the year 20X2, the company has $1.90 in the current assets, in 20X3 the company has $1.542 and in 20X4 it has $1.339 in the current assets for every $1 of the current liabilities. This trend has been reducing from the 20X1 to 20X4. Quick ratio measures liquidity which is the number of dollars in cash and account receivable for every single dollar in the current liabilities. For the year 20X1, the company has a quick ratio of 1.333 which means that for every single dollar o current liabilities, the firm has $1.333 in the cash and accounts receivable to pay the liabilities. The trend of quick ratio is decrease from year 20X1 to 20X4, 1.333, 0.7, 0.541 to 0.459. Debt to equity measures the financial risk of the company which is the number of times dollars are owed for every single dollar in the net worth. From the computations, the year 20X1 has a quick to equity of 1.250 which means that for every single dollar of the net worth invested by the stockholders, the company owes $1.250 of the debt to the creditors. Hence, the trend of debt to equity for this