Example Ratio Analysis

Ratios

Example of Ratio Analysis

These calculations were performed using an excel spreadsheet. You didn't think I manually calculated them did ya ?

Based on our analysis, is XYZ Company financially "healthy" ?

Profitabilty Ratios

Although the profitability ratios have declined somewhat from the prior year, all the profitability ratios still indicate that XYZ is a profitable business. They do need to investigate the 5% decrease in their Gross Margin Percentage.

Liquidity Ratios

All the liquidity ratios indicate that XYZ is an excellent position to be able to pay their creditors.

Activity Ratios

Since XYZ's customer's credit terms are net 30 and customers are taking 40 days to pay, the accounts receivable ratios need to be investigated and corrective actions taken.
While inventory ratios improved slightly, they need to be compared with industry averages to see if any corrective actions might need to be taken.
Since XYZ's suppliers terms are net 30, the accounts payable ratios indicate that XYZ is promptly paying their suppliers.

Solvency Ratios

All of XYZ's solvency ratios indicate that XYZ is financed more by owners than creditors and is in a position to get a loan if needed.