Analyze trends. The idea is to understand some of the meaning behind the trends

Question

Analyze trends.

The idea is to understand some of the meaning behind the trends in the ratios over time. Examples of the questions that your work would answer are:

What changes took place in the business over the four years?

How do you know?

What are the problems you see at Apple?

How do you know?

Key Ratios TTM Efficiency Days Sales Outstanding Days Inventory Payables Period Cash Conversion Cycle Receivables Turnover Inventory Turnover Fixed Assets Turnover Asset Turnover 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20.29 25.66 6.85 6.95 6.30 85.45 -48.64 89.74 -59.61 16.00 49.90 85.57 -52.97 13.62 62.82 10.85 0.89 64.30 39.51 19.67 58.57 10.50 68.77 -67.19 -52.13 19.20 112.12 13.48 -42.70 -47.58 -49.53 51.96 -44.50 63.07 53.28 52.51 70.53 57.94 15.86 16.89 17.26 10.67 0.89 Liquidity/Financial Health Current Ratio Quick Ratio Financial Leverage Debt/Equity 2006-09 2007-09 2008-09 2009-09 2010-09 2011-09 2012-09 2013-09 2014-09 2015-09 Latest Qtr 2.07 1.72 0.26 0.53 Profitability Tax Rate % Net Margin % Asset Turnover (Average) Return on Assets % Financial Leverage (Average) Return on Equity % Return on Invested Capital % Interest Coverage 2006-09 2007-09 2008-09 2009-09 2010-09 2011-09 2012-09 2013-09 2014-09 2015-09 29.89 14.56 26.67 0.89 0.83 0.89 13.83 16.43 14.89 18.92 22.84 27.07 28.54 19.34 18.01 20.45 17.89 22.80 42.84 30.64 33.61 39.06 19.61 41.04 42.01 -369.79 140.28 99.93 66.88

Explanation / Answer

Solution:

The changes that took place during the four years are as follows:

1) It is very clear that the current ratio has decreased over the period which shows the liquity of the company that measn the companys liquidity is reducing and investing more in fixed assets/ Capital asset.

2) Due to increase in the accounts payable turnover it is v ery clear that the company has been increasing in purchasing stock and accumulating the inventory which in turn affecting the liquidty of the company .

3) The company has expanded its business and went on more debt because the financial leverage has increased from 1.49 to 2.43 which clearly denotes that the company has raised funds over a period.

4) similarly the interest coverage ratioalso supports the above analysis as the interest coverage ratio indicates the interst portion that a company can pay to its debt by the operating profit and it is 99.93 in 2015 financial year

5) Return on equity and return on investment has also increased over a period from 22% to 46 % which clearly indicates that the company has been generating good return and the operational efficiency of the company is better.

The problems which is clearly observable are :

1) The liquidity ratio as the current ratio is decreasing from 2 to almost 1 that means the liquidity is locked up in the company

2) As i have already observed that the company has increased in the accounts payable over the period that meant he funda are locked up due to purchase of raw material and hasnot paid to the suppliers.

3) the days sales outstanding has also increased from 19 to 30 and again dropped to 26 which shows that the sales performance of the company is improving but should focus more on the sales performance.

4) The major problem is with the cash conversion cycle ideally the cash conversion cycle should not be negative since it is negative the company should focus of making it positive.

Cash conversion cycle = accounts receivebale - accounts payable + inventory

Thank you.

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