Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 59

Using financial ratios is part art and part science. The technique is referred to as “quantitative” because the ratios themselves are calculated mathematically. However, the methodological technique actually provides both a quantitative measurement and a lens through which to view the organization. On one hand, the lens is a quantitative lens because it allows us to view trends and make comparisons using numeric calculations. On the other hand, it is a fundamental qualitative lens because the interpretation of the ratios provides information about the capabilities of management and the quality of the choices and decisions made.

Recall the discussion of “quality of earnings.” For any firm, the desired quantitative outcome is high ROE (when measured as a trend and when benchmarked against a peer group); however, it is always preferred that the firm's ROE be generated via a qualitatively superior process, and ratio analysis is helpful in identifying the quality of that process. By being proficient in using ratio analysis, the ROE of the firm can be quantified and the qualitative manner in which management has achieved the results understood. Virtually all ratios do not just tell us what the quantitative measurement is; rather, each measurement implies a management choice or capability (or failure) with respect to the choices that generated the numbers that are measured by the ratio.

The summary of a ratio analysis for Old Pueblo Lithographers is shown in Table 4.1.

Old Pueblo Lithographers has generated results as follows:

1 With respect to liquidity, the company has been able to improve its position in both ratios year over year, and it also is above the industry average for 2013. The firm seems to be in a good position for meeting its short-term obligations.

2 The leverage ratios indicate a mostly positive story. Old Pueblo Lithographers has been able to lower its debt to equity and debt to total assets ratios, indicating less financial leverage. It also has improved on its times interest earned and fixed coverage charge ratios in the past year. Compared to industry averages, the firm has a lower debt structure, but it is below average in both coverage ratios.

3 The profitability ratios, however, tell a different story and indicate an area that the firm must focus on improving. Gross profit margin, net profit margin, and ROE improved year over year, while operating margin and ROA had slight deteriorations. The compelling issue is that for 2013, the firm was below industry standards for all profitability ratios. Operating margin and net profit margin were 5.2 times and 10.2 times, respectively, higher for the industry than for Old Pueblo Lithographers. Since gross profit margin was only slightly below industry averages, a close examination of expenses below the gross profit line is warranted, including SG&A and interest expense.Table 4.1 Note: ROA = return on assets; ROE = return on equity.a.Source: Almanac of Business and Industrial Financial Ratios, 2013.b.Based on 45 employees.

4 The management efficiency ratios paint a mixed picture and highlight areas for improvement. Receivables turnover and, in turn, days sales outstanding deteriorated in the past year, pushing days sales outstanding to over twice the industry average. The same is true for inventory turnover and days of inventory, although there was a slight improvement in the firm's year-over-year performance. This indicates that the firm must do a better job of handling its current assets. The accounts payable turnover is slightly below industry average and therefore in an ideal position. Total asset turnover improved slightly in the past year but still trails the industry substantially. Finally, the sales to employee ratio showed improvement year over year and is now even higher than the industry, a positive sign for the firm's use of human capital.