Sample Essay

 

Ratios 2010 2011 2012
       
Current Ratio 0.83 0.89 0.95
Quick Ratio 0.66 0.72 0.76
Inventory Turnover 2.45 1.3 1.33
Fixed Asset Turnover 0.4 0.45 0.5
Total Asset Ratio 0.15 0.16 0.17
Return on Assets 7% 4% 4%
Return on Equity 34% 19% 21%
Profit Margin 24% 24% 24%
Debt Ratio 0.75 0.73 0.69

The financial ratios calculated based on the financial statements of Electro-Light indicate stability and firm growth patterns. The current and quick ratios of the company indicate a stable growth of the company.

 Though both of these ratios are lower than 1 which is quite dangerous in normal conditions but the increase indicates that the company will achieve higher current and quick ratios in the subsequent years of business. The inventory turnover ratio declines through the first three years from a level of 2.45 in 2010 to a level of 1.33 in 2012 and the company would have to take measures in keeping the inventory turnover at higher levels to achieve efficiency in inventory management. The fixed asset turnover of the company demonstrates a steady increase of 0.05 per year which shows that the company will work to increase the efficiency of fixed assets. The return on assets is quite low for the company but the return on equity is higher but displays a decline through the continuing years. The profit margin is at a steady rate of 24 percent throughout the initial three years of operations and will continue for the next two years and the company will try to increase the profit margin after the fifth year of business. The overall financial position of the company is quite stable as majority of the ratios indicate a stable growth throughout the initial years of business.

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