N&S Finance Essay Example | Topics and Well Written Essays - 1000 words

N&S Finance - Essay ExampleQuick ratio Quick ratio, just as electric current ratio, is a measure of the orders liquidity level, only that Quick ratio excludes inventory. This ratio is significantly below the current ratio, which could be an indication that the caller-out is maintaining a high level of inventory. In topic the orders inventory is not easily convertible into liquid cash, then its financial jell is at crossroads because it may experience difficulties paying its short-term confidenceors. The management should also consider whether the fraternity is experiencing sales difficulties because that could be the reason why its inventory level is quite high. If this is the case, strategies should be crafted to increase innovation of inventory into cash so the liquidity could get better. Nonetheless, the positive increase from 0.83 to 0.95 is remarkable and if this trend continues, the company will not have liquidity problems. Accounts receivable swage This ratio also s hows the companys liquidity level. It is a strong indicator of how the management has efficiently employed the accounts receivable. A ratio of 6.63 in 2009 is remarkably big, meaning that arrangement of accounts receivable and extension of credit to customers was operated efficiently. Alternatively, this may indicate that the company operated, chiefly, on cash basis. The drastic fall of the ratio in 2010 could send alarm signals to the management that something is wrong in particular if this sale is not as a result of a shift from cash sales to credit sales. For instance, this could imply that the debtors atomic number 18 servicing their dues very slowly or even defaulting. Average Collection fulfilment Average collection period reflects the period that it takes for the company to receive its accounts receivables. The 53.03 days for 2009 is an ideal period because the company will be assured of conversion of its receivables into cash in less time and use the coin to pay its bil ls. However, 214.38 days for 2010 is very high, and this means that the company may be headed for liquidity problems as a result of customers delaying or defaulting on their dues. This, in turn, will cause cash shortage and hence the company may not be able to meet its administrative and operating expenses. The management should revise its debt collection policies to avoid experiencing liquidity problems. Inventory turnover The inventory turnover for 2009 is 6.5 times, but this reduced to 3.96 times in 2010. This implies that the companys sales have started moving slowly, which is discouraging because this will most likely make the profits directly. This, however, could be a sign that the company is increasing its inventory. Decline in inventory turnover will result to cash shortage and hence this trend should be averted. Total asset turnover Total asset turnover indicates how the management has invested the assets to generate revenue. The higher the ratio the better because it sho ws that the assets are use more efficiently. Reduction of this ratio from 0.93 in 2009 to 0.71 in 2010 is a cause for alarm because it indicates that the companys assets are used less effectively, to generating income. The management should seek ways of boosting sales to ensure this ratio is restored to an best level. Debt to total assets Debt to total assets shows the companys financial leverage, by revealing the proportion of the total assets that are funded by debt. In 2009, 47.14% of the assets were financed by creditors