Reebok Financial Analysis
Uploaded by seinsuct on Mar 16, 2008
Reebok financial analysis paper
The quick ratio is a vital financial ratio that provides managers with the number of dollars of liquid assets on hand to cover each dollar of existing debt. It is important in determining solvency. The ratio reveals the safety afforded short term creditors in cash or near cash assets. It shows the number of dollars of liquid assets on hand to cover each dollar of current debt. Any time this ratio is as much as 1 to 1, (1.0) the business is said to be in liquid condition. The larger the ratio, the better the liquidity
This ratio measures the degree to which current assets cover current liabilities. The higher the ratio the more assurance exists that the sequestration of current liabilities can be made. The current ratio measures the margin of safety available to cover any possible shrinkage in the value of current assets. By and large, a ratio of 2:1 is good
Current liabilities to net worth
This compares the funds that creditors provisionally are risking with the funds permanently invested by the owners. The lesser the net worth, and the larger the liabilities means less security for the creditors. Be careful when selling any firm with current liabilities greater than 66.6% (or ⅔) versus net worth.
Current liabilities to inventory
This ratio combines with net sales to inventory to indicate how management controls inventory. According to D&B, large increases in sales with resultant increases in inventory levels can cause an unsuitable rise in current liabilities if growth isn’t managed prudently.
Total liabilities versus net worth
The effect of long term obligations on a business can be computed by comparing this proportion of current liabilities to net worth. The difference will focus on the relative size of long term debt, which can encumber a firm with significant interest charges. This shouldn’t exceed net worth at all, because then creditors would have a greater stake than the firms owners would.
Fixed assets to net worth
A low ratio is preferred, with a high ratio being adverse, because with heavy investment in fixed assets indicates a low net working capital and is overtrading or has utilized large funded debt to harmonize working capital. Normally fixed assets above 75% of net worth indicate likely overinvestment, and should be checked.
The quality of the receivables of a company can be figured by this relationship...