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Spartech Corporation: A Financial Ratio Analysis

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Essay title: Spartech Corporation: A Financial Ratio Analysis

Spartech Corporation is a leading producer of extruded thermoplastic sheet and rollstock, polymeric compounds, and custom engineered plastic products. Their annual production capacity amounts to more than 1.7 billion pounds produced in manufacturing facilities located throughout the United States, Canada, Mexico and Europe.

The company's financial ratios for 2004, 2005, and 2006 were analyzed and indicates that the company is not without problems.

The current ratio for the company has been on a steady decline over the last three years. From the standpoint of a creditor, the reduction of the company's current ratio is not good as the company's short term liabilities is outgrowing its current assets. However, when you look at the company's balance sheets, you see that cash was depleted to be invested in long term assets (property, plant & equipment). The cash depletion along with the increase in Notes Payable attributed to the decline in the current ratio which indicates the company has used cash and short term notes payable to increase their capital assets. From the standpoint of an investor, this is good as the company took an idol asset (cash) and used it to help build capacity to increase sales.

The company's inventory turnover is showing signs of improvement over the last three years going from 7.9 in 2004 to 12.14 in 2006. This means the company's inventory is not sitting idle, but rather, is turning over and generating sales for the company. This is further supported by the increased sales activity for the company which has been increasing year over year for the last three years.

The company's Receivables Days Sales has also been on a steady decline. This is good news for the business as they are showing signs that their collection efforts have been improving over the last three years. The quicker turnover of receivables means the company is collecting it cash faster and is not tying its money up in funding receivables for its customers. The only

question that needs to be addressed is what credit terms is the company giving its customers. If it is giving them net 30 days, it needs improvement; however, based on the last three years, the receivable turnover is showing signs of improvement which is good for the company's cash flow.

The company's Sales to Total Assets have also shown improvement over the last three years. This indicates the company has been able to use its existing assets efficiently to generate greater sales for the company. A review of the company's balance sheets indicates total assets have shrunk over the last three years while the company's sales have improved over the last three years. As an investor, this is a good sign, however, it could mean the company has reached its capacity output level and may need to raise cash to support future growth.

The Total Debt to Total Asset ratio figure for the company has show a downward trend over the last three years. Both the assets and the liabilities of the company has declined, however, the decline in the company's liabilities have declined faster then their assets. From an investor standpoint, this is good as the company is now able to take on additional debt to help support growth. This additional debt, however, must first be viewed along side the company's Times Interest Earned to ensure the company can support the debt. In a time of increased sales however, the company has been able to increase capital equipments and pay down debt which is really good sign for the company.

The Time-Interest-Earned ratio showed some mixed results. From 2004 to 2005, the Times Interest Earned declined as the companies operating expense soared which reduced the ratio in 2005. Expenses were kept under control in

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