Essay about financial analysis - 1439 Words

SPARTECH Corporation 2009 2010 Industry Average Current Ratio 1.6 times 1.5 times 2.26 Quick Ratio 0.88 times 0.85 times 0.87 Average collection period 51 days 48 days 13 days Days inventory held 28 days 31 days 134 days Days payable outstanding 47 days 52 days 37 days Cash Conversion Cycle 32 days 27 days 133 days Cash flow from operating activities 65,264 39,330 Current Ratio Trend: In both years, the company has the ability to use its resources†¦show more content†¦This is an indication that the company is becoming weaker and far from self sufficiency. The company could do so debt-equity swap, an additional stock issue or selling assets to pay down some of the debt. Therefore the company use strategies depending on the conditions and how much the company want to improve its debt/asset ratio number. Long term debt to total capitalization: Long term debt to total capitalization ratio of the years 2009 and 2010 of Spartech corporation is two times higher than the industry average. This means that the finance of the company mainly comes from the debt which can be quite risky and is sometimes a reason for bankruptcy. The high ratio percentage shows how weak the company is financially. The company should make sure that their long term debt to capitalization ratio is controlled so that their debt is under control. An out of hand debt would create problems to the company as a whole. Debt to Equity: The debt to equity ratio of Spartechs Corporation is higher than the industry average. Higher debt-to-equity ratio is unfavorable because it means that the business relies more on external lenders thus it is at higher risk, especially at higher interest rates. Moreover, the debt to equity of the company is higher than 1 which means more assets are financed by debt than that those financed by money of shareholders. 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