Using the Financial Ratios Calculated from the 2015 Annual Report

question 40

Essay

Using the financial ratios calculated from the 2015 annual report of PVC Pipes, assess the short-term liquidity, operating efficiency, capital structure and long-term solvency and profitability of the firm.
$\begin{array}{lrr}\text { Ratio }&2015&2014\\\hline\text { Current } & 1.52 \mathrm{x} & 1.48 \mathrm{x} \\\text { Quick } & 1.01 \mathrm{x} & 0.98 \mathrm{x} \\\text { Average collection period } & 65 \text { days } & 58 \text { days } \\\text { Days inventory held } & 36 \text { days } & 28 \text { days } \\\text { Days payable outstanding } & 61 \text { days } & 47 \text { days } \\\text { Cash conversion cycle } & 40 \text { days } & 39 \text { days } \\\text { Fixed asset turnover } & 4.91 \mathrm{x} & 4.02 \mathrm{x} \\\text { Total asset turnover } & 1.70 \mathrm{x} & 1.43 \mathrm{x} \\\text { Debt ratio } & 67.10 \% & 63.08 \%\\\text { Long Term debt to }\\\text { total capitalization } & 46.82 \% & 42.51 \% \\\text { Times interest earned } & (5.10 \mathrm{x}) & 1.65 \mathrm{x} \\\text { Fixed charge coverage } & (2.34 \mathrm{x}) & 1.40 \mathrm{x} \\\text { Cash flow adequacy } & 0.32 \mathrm{x} & 0.87 \mathrm{x} \\\text { Gross profit margin } & 10.10 \% & 12.81 \% \\\text { Operating profit margin } & (5.93 \%) & 2.75 \%\\\text { Net profit margin } & (4.98 \%) & 0.91 \% \\\text { Cash flow margin } & 3.84 \% & 7.00 \% \\\text { Return on investment } & (8.63 \%) & 1.28 \% \\\text { Return on equity } & (25.49 \%) & 3.51 \% \\\text { Cash return on asstes } & 6.90 \% &9.10 \%\end{array}$

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Definitions:

Hermann Ebbinghaus

A psychologist best known for his research on memory, the forgetting curve, and the spacing effect.

Richard Atkinson

A psychologist who, along with Richard Shiffrin, proposed the multi-store model of memory, which includes sensory memory, short-term memory, and long-term memory.

Trace Memory

A type of memory that results from automatic or unconscious learning and is not part of our conscious awareness, often revealed through performance rather than explicit recall.

Sensory Memory

The shortest-term element of memory, which allows individuals to retain impressions of sensory information after the original stimulus has ceased.