Hi! Can someone please describe the projected financial position of this company

Question

Hi! Can someone please describe the projected financial position of this company in comparison to the industry norms. The company is selling automotive parts which would be manufactured using their pre-existing cold forging process.

Please explain how the manager is operating the business.

Thank you!

ManuSteel (Projections based on entering the Automotive market): Financial Ratio Current ratio Acid-test ratio Equity ratio Profit Margin Return-on-assets ratio Return-on-equity ratio 2010 1.72 1.55 0.46 41% 4.8% 10.5% 2011 1.81 1.70 0.46 50% 6.1% 13.3% 2012 1.74 1.68 0.44 53% 5.9% 13.4% Industry Norms 2.58 1.05 0.45 60% 5.6% 12.4% Ratio Calculations:

Explanation / Answer

Financial ratio analysis is the process of calculating financial ratios, which are mathematical indicators calculated by comparing key financial information appearing in financial statements of a business, and analyzing those to find out reasons behind the business’s current financial position and its recent financial performance, and develop expectation about its future outlook.

1. current ratio- Current ratio is one of the most fundamental liquidity ratio. It measures the ability of a business to repay current liabilities with current assets. company current ratio is improving but still lacks to achieve to industry norms(2.58)

2.Quick ratio (also known as asset test ratio) is a liquidity ratio which measures the dollars of liquid current assets available per dollar of current liabilities. this ratio seems very good if compared to industry norms

3.Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It is a leverage ratio and it measures the degree to which the assets of the business are financed by the debts and the shareholders' equity of a business. company almost achieve this ratio as compared to industry norms.

4.profit margin (also called profit margin) is the most basic profitability ratio that measures the percentage of net income of an entity to its net sales. this ratio not seems satisfactory for the company is not able to achieve 60% profit margin.

5.Return on assets is the ratio of annual net income to average total assets of a business during a financial year. It measures efficiency of the business in using its assets to generate net income. It is a profitability ratio. comapny able to achieve this ratio compared to industry norms

6.Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity. comapny able to achieve this ratio compared to industry norms.

The overall business managed by the managers seems goods as suggested by financial ratio analysis.

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