Axeltronics Is a Manufacturer of Electronic Components and Accessories with Total

question 55

Essay

Axeltronics is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Axeltronics and the industry averages for firms of similar size are presented below. $\begin{array}{lcccc} &&\text { Axeltronics }&&\begin{array}{ll}2013\\\text {Industry }\\\text {Average }\end{array}\\& 2016 & 2018 & 2019 & \\\text { Current ratio } & 2.09 & 2.27 & 2.51 & 2.24 \\\text { Quick ratio } & 1.15 & 1.12 & 1.19 & 1.22 \\\text { Inventory turnover } & 2.40 & 2.18 & 2.02 & 3.50 \\\text { Return on Equity } & 0.14 & 0.15 & 0.17 & 0.11\end{array}$ Axeltronics is being reviewed by several entities whose interests vary, and the company's financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Axeltronics' financial position.
● Mid Coastal Bank. The bank is processing Axeltronics' application for the new five-year term note. Mid Coastal has been Axeltronics' banker for several years, but must re-evaluate the company's financial position for each major transaction.
● Ozawa Company. Ozawa is a new supplier to Axeltronics, and must decide on the appropriate credit terms to extend to the company.
● Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Drucker & Denon must decide if it will include Axeltronics in a new fund being established for sale to Drucker & Denon's clients.
● Working Capital Management Committee. This is a committee of Axeltronics' management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company's working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Required:
(1) Describe the analytical use of each of the four ratios presented above.
(2) For each of the four entities described above, identify one or two financial ratios, from those ratios presented, that would be most valuable as a basis for its decision regarding Axeltronics.
(3) Discuss what the financial ratios presented in the question reveal about Axeltronics. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

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Definitions:

Small Intestine

A long, coiled section of the digestive tract where most of the digestion and absorption of nutrients takes place.

Carboxypeptidase

An enzyme that breaks down proteins by hydrolyzing the peptide bonds at the carboxy-terminal end of the protein or peptide.

Amino Acids

Organic compounds that combine to form proteins and are essential for various bodily functions.

Pancreatic Lipase

An enzyme produced by the pancreas that breaks down fats into fatty acids and glycerol during digestion.