When comparing Garners’ profitability ratios to the industry standards, Garners’ is performing above the industry benchmarks. The profit margin is at 26.65%, which means the company is operating efficiently. The basic earning power is at 26.32%, which is above the industry average of 19.9%. The return on assets is at 14.05% and the return on equity is at 33.10%, both are well above the industry averages. Also, the dividend payout ratio is 31.18%, all of these ratios indicate the company is doing well (Cornett, Adair & Nofsinger, 2015). Unfortunately, the liquidity ratios are slightly below the industry averages. This is because inventory and accounts receivable make up a considerably larger portion of the current assets than cash and marketable securities. This could mean there is a problem with inventory management or collection on accounts. The inventory turnover ratio is lower than the industry average and the days’ sales inventory is well above the industry average of 146 days. Quick inventory turnover is vital in reducing storage costs (Cornett et al., 2015). …show more content…
Companies want to collect payment as quickly as they can and Garners’ has achieved this. The accounts receivable turnover ratio is 4.49 which reinforces that the company has a competent collection system in place. Garners’ payment period is forty days above the industry average. As long as they pay their debts on time, this displays that the company is minimizing opportunity costs through proper debt management. It is favorable for a company to pay debt on time; however, it is not always good to pay debt early. The fixed asset ratio is below the industry average. However, the total asset management is higher than the industry average and this shows the company is using its assets correctly (Cornett et al.,