Average Collection Period Ratio Analysis: CAP measures the amount of time it sakes to collect on credit sales. Most credit businesses are done within 30 days. Northern Manufacturing CAP ranged from 72-117 days, which is extremely high. It is safe to assume that the company has a lot of outstanding account receivables. Inventory Turnover Ratio Analysis: This ratio gives an indication of the quality of inventory and how well it is managed. Management of inventory in 2013 was not as frequent as in 2011 (3. ). Fixed Asset Turnover Ratio Analysis: The fixed asset turnover ratio is a long- term measure of the company’s performance. For every dollar the company is generating, they generate $4 in sales. Total Asset Turnover Ratio Analysis: This ratio is more widely used than the fixed asset turnover ratio. The ratio has steadily decreased over the course of three years. Debt Management Ratios: Debt Ratio: Northern Manufacturing debt ratio is extremely high throughout all three years.
Although it decreased by roughly 8% in 2013, this number is still very high and is not a good representation of the company. Debt-to-Equity Ratio: The debt to equity ratio for the company is high over all three years. This implies that the company is at risk. TIE Ratio: A high level of interest coverage implies safety; consistent turnover ND interest is being earned. The ratio changes a little bit, but not too drastically. Cash Coverage: The ratio is slowly increasing over time which is an accurate representation of an increase in cash in the company’s hand.
Fixed Charge Coverage: This ratio includes Leasing as a form of financial charges so this number plays a factor in the percentage compared to the cash coverage. Profitability Ratios: ROSS: ROSS measures control of the income statement: revenue, cost and expense. The percentage increased over all three years; therefore, the company must have gained more control over its income statement during this time. ROAR: This ratio measures the overall ability of the firm to utilize the assets in which it has invested to earn a profit.
Northern Manufacturing was most successful in 2013. ROE: The most significant part about the ROE ratio is that if the firm has substantial debt, ROE tends to be higher than ROAR in good times and smaller in bad times. While ROE decreased about 15% from 2011 to 201 3, the number is still very high and Northern Manufacturing is still in a substantial amount of debt. Market Value Ratios: PEPS: The earnings per share ratio consistently increased over the course of three years and almost doubled. This is a good sign for Northern Manufacturing.
P/E Ratio: The PIE Ratio tells a firm how much investors are willing to pay for a dollar of the firm’s earnings. Over three years, this value was cut in half. Investors were not willing to pay a high price to invest in Northern Manufacturing. Value Ratio: The significance of the value ratio is that a value less than 1. 0 indicates a poor outlook for the company’s future. Northern Manufacturing had the highest outlook in 2011 at 10. 7, but significantly decreased by 2013. Although the value is still above 1. 0, it would be beneficial for the company to get it back to around 10. 7 in 2011.
