The company's financial ratios for 2004, 2005, and 2006 were analyzed and indicates that the company is not without problems.
The current ratio for the company has been on a steady decline over the last three years. From the standpoint of a creditor, the reduction of the company's current ratio is not good as the company's short term liabilities is outgrowing its current assets. However, when you look at the …show more content…
Profit margin on sales ratio has gone back and forth over the last three years. The ratio dropped to 1% in 2005; however, it rebounded in 2006 to go up to 3%. This is still below the 4% three year high in 2004. Overall, it shows that the company's profitability declined in 2005 but rebounded in 2006.
The return on assets followed the same trends as the Net Income / Net Sales. The returns were strong in 2004; however, due to the increased operating expenses in 2005, the return on assets falls in 2005 before rebounding again in 2006 due to improved operating expenses.
The return on equity followed the same pattern as the previous two ratios. The ratio was strong in 2004; however, it fell in 2005 before rebounding again in 2006. Due to the company's use of debt, the return on equity was better as investors did not have to shell out all their cash to support the company's growth.
The company's ratios indicate their working capital is being strained as they use their internal cash to