Analysis of Ratios Liquidity Ratios Current Ratio= CA/CL Current ratio is a financial ratio that evaluates if a business has an adequate amount of resources to cover its debt over the next business cycle (typically 12 months). It does so by relating company's current assets to its current liabilities. Standard current ratio values differ from industry to industry. The higher this ratio, the more proficient the company is to pay its debt. A problem with the current ratio is that it accounts for inventory, which is not as liquid as other current asset accounts, and may lead to a disingenuous analysis. Another problem arises with this ratio because it accounts for the receivables account, which may overvalue the ratio, especially if the business …show more content…
However, Nike seems to be doing the opposite, which is giving a high ratio. Debt per Equity Ratio = Total Debt/Total Equity The debt per equity ratio shows to what extent a company’s assets are either financed by debt or equity. A high ratio indicates aggressiveness on behalf of the company to finance its growth through debt. Skechers’s debt per equity ratio slightly decreased from the year 2012: from 0.462x to 0.443 which is an indicator that Skechers are keeping a close eye on debt and are trying to finance the company through equity and this is apparent when we look at the Skechers financial statements for the years 2012 and 2013 where equity increased at a higher amount than debt. When we compare Skechers’s ratio (0.443) to that of the Nike (0.721), we realize that it is much higher than Sketcher’s which might be that Nike is taking safe measures when it comes to financing themselves: which is through debt. But at the same time it is a very high and risky ratio. Equity Multiplier= Total Assets/ Total …show more content…
This ratio is of importance to new investors and suppliers because it shows the long run sustainability of a company. Skechers’s decreasing long-term debt ratio is a sign that the company is trying to insure its survival into the long run. This decreasing trend was achieved by a combination of decreasing long-term debt and increasing equity from the year 2012 to 2013. Although Skechers seems to be trying its best to decrease this ratio and maintain its long-term sustainability, its ratio (10.621) is still a bit higher than Nike’s (10.051). For Sketchers, this decrease in the LTM means that they are on the right track, but it still needs some modifications to do for it to. Coverage Ratios Times Earned Ratio= EBIT/Interest The Times Interest Earned ratio is a measure of the company’s preparedness to cover its debt payment by calculating the number of times it can honor its interest payments before paying