categories in Chapter 4 and below). 2.4 WRITING UP YOUR ANALYSIS OF THE RATIOS N
ID: 2574281 • Letter: C
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categories in Chapter 4 and below). 2.4 WRITING UP YOUR ANALYSIS OF THE RATIOS Name your file TexasRoadhouseAnalysis_lastname.docx.Include your name at the top of page 1 of the document. Write one long paragraph or two shorter paragraphs for each section (Liquidity, Activity, Debt, Profitability, Market Value, Common-Size (OPTIONAL), DuPont Analysis (do ROE decomposition for 2016 only, so you will have to calculate the financial leverage multiplier for 2016 as part of this analysis), and Overal/summary). Highlight strengths and weaknesses in each section using Trend Analysis (your five years of values provide the trend) and, where available, comparison to the industry average for each particular ratio. Do not say "increasing" or "decreasing" for trend - this does not tell us anything useful. If there is no trend at all, you may label this as "stable." Usually, we can see p comparisons to industry averages). In your Overall/Summary concluding to highlight the main findings from all of your category write-ups. Flag any especially positive or negative things that you found. Give advice to TXRH management for how they might improve 2.4.1 alysis), and Overall/Summary). Highlight strengths and weaknesses in each oor/fair/neutral/good/excellent trends (or para graph(s), make sure ituation that you see as fair or poor. Your write-up should not exceed two pages single- spaced or four pages double-spaced. Always refer to a company as “it," not "they." Only say "they" if you are specifically including the word "management" or "managers" in the sentenceExplanation / Answer
The Current Ratio and Acid Test Ratio are two important ratios that explains the company's ability to meet short term liabilities. The value less than 1 implies that the company is short of liquidity. However, improving ratios for the last three years suggests that the company is on track for recovery.
It has improved it's inventory turnover ratio for the past few years. However, it's noted that this improvement is by doing credit sales rather than cash sales. As a result the company's collection has slowed down which in turn has lead to high working capital and increase in debt. This will also result in high financing costs.
It has been paying creditors very well though the collection has slowed down. As a result creditors payment period has come down. This also had led to increase in working capital.
The Company has not been using assets efficiently which has led to decline in Asset Turnover Ratio.
It is very efficient in managing it's overheads. However, Gross Profit is very low compared to industry. The other profitability ratios are in line with Industry.
The Price to Earnings and Market to Book value per share ratios have expanded without supporting growth.
Suggestions:
a) Improve the Gross Profit in line with Industry by reviewing the pricing and variable cost
b) Improve the Asset Turnover Ratio by Utilizing the assets efficiently
c) Reduce the debt by reducing the working capital requirements. This can be achieved by improving the collection, reducing the inventory and delaying the payments to suppliers.
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