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Technology's Financial Ratios

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If we look at the ratios, the financial health of Modern Technology has worsened slightly in financial year of 2015 as compared to financial year of 2014.

We will look at current ratio, acid test ratio, inventory turnover ratio and receivable turnover ratio to examine Modern Technology’s liquidity as a company over the two years.

Current ratio: Modern Technology’s current ratio improved slightly from year 2014 to year 2015. A higher current ratio is desirable because it shows that Modern Technology is able to make current debt payment easily. This can be further supported by the increase in accounts receivables collected in year 2015.

Acid test ratio: This ratio improved slightly year 2014 to year 2015, this suggests Modern Technology …show more content…

This ratio could suggest Modern Technology is collecting receivable from their clients after a longer duration in 2015 than in 2015.
Debt ratio and times interest earned ratios will be looked into while we assess the capital structure of Modern Technology.
Debt ratio: Modern Technology’s is decreased from year 2014 to year 2015. The lower debt ratio usually implies the company has a financially stable business and that the company is performing well.

Times-interest earned: Modern Technology’s has increased from year 2014 to year 2015. This suggests the company’s income is able to pay for its interest payment when it comes due.
Under asset management efficiency ratios, we look at total assets turnover and fixed asset turnover.
Total assets turnover: Modern Technology’s dropped slightly from year 2014 to year 2015. However, Modern Technology is able to use its assets efficiently to generate sales because it is a positive ratio.
Fixed asset turnover: Modern Technology’s fixed asset turnover ratio improved from year 2014 to year 2015. This could imply that the increase in fixed assets consisting of net plant and equipments contributed to the increase in …show more content…

This is mainly due to higher cost of goods sold which offset the increase in sales, resulting in a lower gross profit margin.
Net profit margin: Modern Technology’s ratio worsened in 2015 as compared to 2014. Sales has increased by $131 million from year 2014 to year 2015. However, it was offset by the increase in cost of goods sold by $145 million in the same period, resulting in a decrease in net sales of $14 million.

There was a slight increase in depreciation expense by $16 million. However, it was offset by a decrease in interest expense and tax of $19 million and $4 million respectively, resulting in a net decrease in operating expenses by $7 million. Despite so, this amount could not completely offset the decrease in net sales, therefore resulting in a decrease in net profit margin.
Formula for ROE = Net profit margin * total asset turnover * equity multiplier

Return on equity: Return on equity ratio deteriorated from 16.09% in 2014 to 14.01% in 2015. Modern technology has a higher return on equity (ROE) in 2014. We will look at the equation on return of equity and point out which element caused the ROE to worsen in the financial year of

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