I have attached an overview comparative income statement for the company for the years 2012 and 2011 highlighting the company’s financial performance, but I also want to quickly discuss the trends I have noticed from our data after carrying out a horizontal analysis on the data. The ability of a company to pay short-term obligations is determined by the Current Ratio. In 2012, Company G’s current ratio decreased from 1.86 to 1.77; a rating below the 2nd quartile of 2.1 and above the 3rd quartile of 1.4. This ratio demonstrates weakness, stating that the Company’s ability to pay current debt is below the standard Home Centers Retail Benchmark of 1.8, (ROI, 2015); which indicates that the company would struggle to pay its short-term obligations …show more content…
An Acid-Test Ratio below 1 indicated that liabilities cannot be paid, (Brechner, 2011). Company G had an Acid-Test Ratio of 0.64 in 2011, decreasing to 0.43 the following year. This rate falls below all three quartile benchmarks: 1.6, 0.9, and 0.6 quartiles. The company’s Acid-Test Ratio represents weakness, indicating that the company would not be able to pay all its current liabilities without selling its inventory. Inventory Turnover measures the number of times Company G sells its inventory during a year, whereby a high ratio would indicate a high rate of turnovers and subsequent easiness in selling inventory. In 2012, the company’s inventory ratio decreased from 6.1 to 5.2, a ratio value below the 3rd quartile of 8.3 indicating weakness. However, this rate was similar to the standard inventory turnover ratio set by the Home Centers Retail Benchmark at 5.2, indicating that the difficulties experienced by Company G were similar across the …show more content…
The 2012 rate for Company G was 13.7%, up from 12.3% in 2011. This means that the company earned 13.7 cents on each dollar of assets, 1.4 cents more from 2012. This rating was above the 2nd quartile of 12.3%, but below the 1st quartile of 17.2%; indicating the company’s performance was satisfactory. The rate of returns on common stockholder’s equity represents the total return on every dollar invested by stockholders (Yahoo, 2015). The return on sales and on assets of Company G decreased from 20.2% in 2011 to 19.61% in 2012. However, this rate was above the 1st quartile of 18.6%, indicating a strong performance. This means that the company is 1% more profitable than the other companies in the industry. Earnings Per Share is the amount of profit allocated to each outstanding share of a company’s common stock. In 2012, Company G recorded a recuperating trend of $1.1, up from $0.672 in 2011. Furthermore, the company’s earnings per share were $0.2 above the 1st quartile of the standard in the industry, indicating strength of the