Case: Avery Products
Questions:
1) Calculate the key financial ratios for Avery Products, Inc., and plot trends in the firm’s ratios against the industry average.
Ratios A B C Industry Average
Quick Ratio 2.08
0.97 0.61 1
Current Ratio 4.16
2.6 1.84 2.7
Inventory Turnover 41.5 66.6 104.34 51.42
Average collection period 33.27 36.29 48.91 32
Fixed-Asset turnover 11.6 10.71 12.39 13
Total-Asset Turnover 3.13 2.57 1.95 2.6
Return on total assets 15.77% 8.40% 3.62% 11.7%
Return on net worth 49.36% 21.59% 7.06% 23.4%
Debt ratio 17.49%
29.26% 45.70% 50%
Profit-Margin on Sales 5% 3.27% 1.86% 4.5%
Gross Profit Margin 20% 20% 20% N/A
2) What strengths and weaknesses are revealed by the ratios?
Quick Ratio: The declining quick ratio is hinting towards problems with cash flows and probably higher liabilities.
Current Ratio: Avery is also having problems with liquidity as its current ratio has been on a downward trend.
Inventory Turnover: We can relate the......
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