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Chapin Manufacturing Corporation. Examining financial health by analyzing ratios crucial to economic well-being for: Division A Division B Division C. Ratios Explained.

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chapin manufacturing corporation
Chapin Manufacturing Corporation

Examining financial health by analyzing ratios crucial to economic well-being for:

Division A

Division B

Division C

ratios explained
Ratios Explained
  • Current Ratio – ratio of current assets to current liabilities. It is always best to have a ratio of over one in order to stay in business during economically slow times, although a ratio that is too high may mean that not enough reinvestment is occurring and long-run potential may not be fully realized.
  • Days Sales Outstanding – the number of days of sales that are in Accounts Receivable at the end of the accounting period over the total credit sales divided by 365. This is an indicator if customers are paying bills on time.
  • Inventory Turnover – is determined by dividing cost of sales for a period by the inventory at the end of that period. It is best to strike a balance between slow moving inventory (which ties up costly storage space and threatens to become obsolete) and inventory that turns over so fast that a firm may not be able to satisfy consumer demands resulting in profit loss.
  • Debt to Equity – simply the ratio of debt to equity. A low percentage is ideal, but as with the current ratio, too low may mean that the future potential of the company will remain untapped.
division a ratio results apparent strengths weaknesses
Current Ratio – 2.44 to 1

Inventory Turnover – 5.56 times

Strengths

Healthy current ratio of at least 2:1.

Good inventory turnover minimizing storage costs.

Days Sales Outstanding – 42.58

Debt to Equity – 39.47%

Weaknesses

Debt to Equity a little high – may find it difficult to stay open in an extended down period

DSO above thirty, may signify customers are not paying on time.

Division ARatio ResultsApparent Strengths & Weaknesses
division b ratio results apparent strengths weaknesses
Current Ratio – 3.27 to 1

Inventory Turnover – 5.74 times

Strengths

Solid current ratio and debt to equity ratio signals that long term growth and the ability to outlast down economic periods are present.

Good inventory turnover minimizes costs.

Days Sales Outstanding – 31.52

Debt to Equity – 18.78%

Weaknesses

DOS is marginally high, possibly suggesting late payments by customers.

Division BRatio ResultsApparent Strengths & Weaknesses
division c ratio results apparent strengths weaknesses
Current Ratio – 6.42 to 1

Inventory Turnover – 6 times

Strengths

Good inventory turnover means more profit.

Low DOS signifies less bad debt that needs to be factored in to sales, as well as prompt payment.

Days Sales Outstanding – 22.72

Debt to Equity – 5.84%

Weaknesses

High current ratio and low debt to equity may mean that division C is geared more towards immediate profits, rather than long term.

Division CRatio ResultsApparent Strengths & Weaknesses
chapin manufacturing corporation ratio results apparent strengths weaknesses
Current Ratio – 3.27 to 1

Inventory Turnover – 5.74 times

Strengths

Good current ratio shows balance between reinvestment and creating a safety net for lean times.

Debt to equity also indicative of a balanced strategy that doesn’t ignore the long term.

Days Sales Outstanding – 31.52

Debt to Equity – 18.78%

Weaknesses

DOS is a little over thirty days, which may mean more defaults on payment and a reduction in retained earnings. DOS is only a rough estimate, so there is no need for deep concern when the difference is so small.

Chapin Manufacturing CorporationRatio ResultsApparent Strengths & Weaknesses
consolidated company ratios days sales outstanding inventory turnover debt to equity ratio
Consolidated Company RatiosDays Sales Outstanding - Inventory Turnover - Debt to Equity Ratio