California Chopper Financial Ratios Essay

|Inventory turnover |180,000/5000 |36 |N/A |Inventory turnover is calculated to determine how quickly the inventory is used based on the services rendered.|

The inventory turnover ratio "measures the number of times on average the inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period" (Kimmel et al, 2007, p. 292). This indicates how quickly a company sells its goods and a high ratio "suggests that management is reducing the amount of inventory on hand, relative to sales" (Kimmel et al, 2007, p. 287).

Now as far as the company’s cash flow is concerned, the company has been suffered with very weak cash flows because inventory and receivables have increased which result in negative cash flows and due to increased in accounts payable resulting in positive cash flow thus overall cash generated from operations remain intact. However as mentioned above it is operational inefficiency due to delay in collection from customers resulting in delay in payments to creditor. The current ratio is at satisfactory level.

The second reason would be due to the ratio of rate of return on total assets, for the current year 2011 the company has a ratio of 6.1% and this is a low rate of return ratio because the company's net income declined by 79.20% compared to the previous year 2010. This also indicates the company is fragile because it measures how the company is using its assets to generate revenue.

In regards to current ratio we can see that CVS improved from 2009 to 2010, but in 2011 it fell once again. The higher the current ratio the more favorable it reflects on the company; in 2010 for every dollar of current liabilities the company had $1.60 of current assets to pay back its short term liabilities. Current cash debt coverage ratio demonstrates a better understanding of the company’s average day standing. Liquidity improved for CVS from 2009 to 2011.

One of the five measurements of a financial ratio analysis is asset management, also known as turnover. Dess, et al. (2012) evaluates turnover by calculating the cost of goods sold over inventory (p. 497). Inventory turnover evaluates how a company can flip its product within a given time (Adkins, n.d.). The higher the turnover, the more “light inventory” a company has as Adkins (n.d.) explained. Turning over inventory, especially in the shoe retail industry, is imperative to keeping up with the competition and making a profit. Inventory turnover allows for the best price stability that, in turn, offers a better profit margin from selling at competitive prices. Customers want to see the newest arrivals, not the old products that everyone else has. For Footlocker and Finish Line, turning over the old with the new inventory can be costly and will jeopardize their clientele. Therefore, in comparing Finish Line to Foot Locker (Figure 3), Finish Line turns over inventory faster while it makes more use of its freed cash from its profit margin for other opportunities.

Rapid cash collections are indicative of high turnover; however, loss of customers to rival firms and tight credit levels arise from extremely high accounts receivable turnover level, (Horngren, 2013, p. 805).The accounts receivable turnover for Harry Jones in 2014 was 7.93 times. This figure decreased to 5.63 times in 2015. Both figures are less than the industry average of 9 times. Low inventory turnover levels might be attributed to reduced accounts receivable turnover levels throughout both 2014 and 2015. Inventory levels can be increased in the future to achieve higher accounts receivable turnover, (Horngren, 2013, p. 805).

Based on Next Annual Report and Account January (2011), the chief executive's review present the A New Normal of company overview, due to the changing consumer environment, Next PLC need to have New avenues of growth, and brand new way to control cost, also, it will be important that retailer have to generate the healthy cash flow with cautious management. Furthermore, enable to know how company efficiently use asset to generate revenue and whether there was improvement between 2010 and 2011, the activity ratios have to calculate out. The ROCE in 2010 and 2011 were 38.91%,41.79%, this number showed how profit generated by capital employed, and the growth figure of ROCE lead to level up efficiency asset used.((NEXT PLC, 2011 page43, 45) The figure for inventory turnover, receivable turnover, and payable turnover in 2010 and 2011 were 46.81 days, 54.98 days; 66.07days, 68.23 days; 83.36days,81.3days; respectively. (ibid) It is clearly show that the inventory and receivable turnover in 2010 was taken lesser day than 2011, in which means inventories took less day to sold out to costumer and the cash credit receive more faster than the 2011, besides, the payable turnover had longer period than 2011, it was also a good example to illustrate that there was more cash flow holding by company, and the overall image of these figure present that the resource had been

The financial ratios based on the financial statements of TJX Company Inc. form 10-k cash ratio is 0.62. Cash Ratio is the main source of a business and without sufficient funds “a company cannot pay its employees or meet business obligations” (Bethel, 2017). TJX Companies Inc. total cash ratio is $2,929,849 and total liabilities are $8,373,209. Their debts are higher than their cash possibly they are using their cash to pay off inventory costs.

Another ratio we will look at is total asset turnover rate. Total asset turnover rate measures how efficiently a company uses its assets to generate sales. In 2001 the total asset turnover rate was 1.079 and in 2000 it was 1.193. The fixed asset turnover ratio is similar to the total asset turnover ratio but includes only fixed assets. The fixed asset turnover rate measures the capacity utilization and the quality of fixed assets and was 3.771 for 2001 and 3.854 for 2000.

The financial statements included tend to combine cash and marketable securities into a category labeled “cash and cash equivalents”. If the cash ratio is recalculated using this value instead of simply cash than the ratio improves to 1.10, which shows much stronger liquidity capabilities.

CURRENT RATIO show a company’s ability to pay its current obligations that is company’s liquidity. The current ratio position is lower for Honda at 0.33 than for Toyota at 1.22 in 2010. Honda has a large portion of receivables in assets both in trade, notes receivables and finance receivables. It has a huge portion of cash as well. This indicates the company has no problem in terms of generating a positive influx of assets. But in terms of liabilities it has a large portion of short term debt which makes almost 1/3rd of total Current liabilities. Also there is a significant portion of Long Term debt. The higher level of liabilities in the denominator reduces the overall ratio.

In this context, the project studies stock turnover ratio and fixed assets turnover ratio of selected companies. Inventory or stock is a very crucial asset for a manufacturing company. In reference to inventory turnover ratio, the cost of rae materials used in Indian auto industry is the major component in cost of production and its share is increasing day by day. The managerial efficiency to keep an optimum level of asset lies in keeping an adequate ratio of assets to turnover. For instance inventory turnover ratio tells that how long it takes to convert stock into sales for a company. Higher inventory turnover is considered to be desirable as it usually implies strong sales. On the contrary, lower turnover ratio represents poor volume of sales and excess inventory which ultimately accounts for an investment with a zero rate of return. Likewise, Higher fixed asset ratio says that company has invested less amount in fixed assets to generate sales revenue hence it represents better ability of company to utilize the fixed assets. On the contrary, lower ratio depicts the company's efficiency to use its fixed assets in an optimum manner. The results of ratio analysis are shown in

Inventory turnover is the measurement of the number of times inventory is sold or used in a time period such as a year where measure the firm’s operational efficiency in the management of its assets. The equation for inventory turnover equals the Cost of goods sold divided by the average inventory where average inventory equals beginning inventory plus the ending inventory and divided by 2. Besides, inventory turnover is also known as stock turns. The formula for inventory turnover is as follows:

Whereas, accounts payables days have sharply declined to 64.2 days, notwithstanding the year 2010, when it was the longest period of 75.4 days for paying bills. In general, the slower the converting receivables into cash and the more difficult meeting short-term liabilities, then the lower inventory turnover and lower cash conversion cycle will be. This can be proved by the calculated figures. As it is shown the inventory turnover fell down from 4.95 in 2011 to 3.90 in 2013, while the industry average is 6.87. This indicates that company is not converting inventory into cash as quickly as it used to. Among Sime Darby’s competitors its stock turnover figure is the smallest, while Bousted Holding has the greatest