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Financial Analysis of Real & Virtual Companies

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Financial Analysis of Virtual and Real Companies

ZeroMillion.com, 2006, states

The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Current Ratio = Total Current Assets / Total Current Liabilities

A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort

Huffman Trucking and J B Hunt have a current ratio of 1:1 while Knight Transportation has a current ratio of 3.6:1. The current assets for Huffman Trucking and J B Hunt are almost the same as their current liabilities. Knight Transportation has current assets of $96,070 and current liabilities of $26,154. Knight should not experience any difficulty paying their obligations. Huffman Trucking and J B Hunt should look at other methods to increase their current assets or decrease their current liabilities.

I was unable to calculate the current ratio for McBride Financial because they do not have a balance sheet listed on their website. The current ratio for Countrywide Financial is 0.3:1; which is below the minimum acceptable of 1:1. The current liabilities for Countrywide Financial almost four times their current assets; they need to determine what is causing their short/current long-term debt and other current liabilities and find a way to decrease them. As a lender, they should know the importance of a strong current ratio is necessary when obtaining outside financing. The current ratio for Accredited Home Lenders is 0.5:1; which is below the acceptable minimum. Accredited Home Lenders is purchasing almost of their assets through debt instead of with equity, which is decreasing their current ratio.

The current ratio for Kudler Fine Foods is 17:1 and they should not have any difficulty paying their obligations. Kudler should consider investing their cash into long-term assets. Ruddick Corp. has a current ratio of 1.6:1; which is lower than the generally accepted ratio of 2:1. Their accounts payable are almost double their net receivables. Ruddick may want to consider converting some long-term assets to pay off their accounts payable and increase their current ratio to a more acceptable level. Frutarom Industries has a current ratio of 1.1:1; which is the minimum accepted ratio. Frutarom Industries had bank credit and loans which are almost half of the current assets. If Frutarom Industries converted the bank credit and loans into long-term payables, they could increase their current ratio to the generally accepted ratio of 2:1.

Riordan Manufacturing has a current ratio of 2:1 in 2005; which although acceptable, decreased from 2.4 in 2004. Dow Chemical has a current ratio of 1.6:1, which has increased from 1.5:1 from the previous year. West Pharmaceutical Services has a current ratio of 1.9:1 for the past two years. These companies meet the generally accepted ratio of 2:1 and should not experience any difficulty paying their obligations.

BIZWIZ Consulting, 2006, states:

Debt Ratio = liabilities / assets

The debt ratio is also known as the debt to equity ratio or financial leverage ratio.

The debt ratio shows the reliance on debt financing. A high debt ratio is unfavourable because it indicates that the company is already overburdened with debt.

Huffman Trucking has a debt ratio of 70%; J B Hunt has a debt ratio of 48% and Knight Transportation has a debt ratio of 25%. When the debt ratio increases, the company is purchasing additional assets through additional debt. Huffman has a debt ratio below the industry average and should lower their debt ratio by purchasing the assets with cash.

I was unable to determine the debt ratio for McBride Financial Services because I do not have a balance sheet. Countrywide Financial has a debt ratio of 93% and Accredited Home Lenders has a debt ratio of 94%; and should increases their sales in order to reduce their debt.

Kudler Fine Foods has a debt ratio of 28%; which is very good and they should not experience difficulty paying their current obligations. Ruddick Corp. has a debt ratio of 54% and should have no problems paying their current obligations. Frutarom Industries has a debt ratio of 63%; and should focus on increasing their sales to pay off the debt. Kudler Fine Foods has a debt ratio that is above the industry standard.

Riordan Manufacturing has a 36% debt ratio for 2005 and 2004, and is currently above the industry standard. They

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