Liquidity Analysis: Current Ratio Quick Term Paper

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Total Length: 499 words ( 2 double-spaced pages)

Total Sources: 3

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54

0.54

Asset Turnover

0.35

0.28

Net Assets / Total Assets

0.34

0.34

For these calculations, it is assumed that net assets is defined as total nets, net of liabilities (aka shareholder's equity). The asset management at this firm has changed little over the course of the past year. The only ratio in which a change is noted is the asset turnover, and that is more related to the fact that operating revenue saw an increase of 27.7% last year.

Calculations:

2001

2000

LTD/Assets

$1,243,522 / $2,280,086

$1,201,590 / $2,213,837

Total Asset Turnover

$799,554 / $2,280,086

$625,787 / $2,213,837

Net Assets / Total Assets

$779,841 / $2,280,086

$756,174 / $2,213,837

Overall, the financial health of Hopeful Happy Health Care Systems (HHHCS) is adequate.

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The biggest area of concern is with respect to profitability, as the company has very low operating margins. In 2000, the company barely turned a profit, and although 2001 represented an improvement, that improvement was somewhat limited, and the ROA was still below 1%. It is expected that a firm with health profits is able to generate a much higher ROA.

The most alarming of other figures is the accounts receivable turnover. At 176 days, this turnover is far too slow. The combination of narrow margins and high A/R turnover in day means that the company could find itself subject to cash crunches from time to time. It.....

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