I have listed the ratio numbers below, I am more interest in looking at examples
ID: 2444210 • Letter: I
Question
I have listed the ratio numbers below, I am more interest in looking at examples of how to write the paragraph. If some one already has done this I would just like to see your paragraphs and I can change to my own wording. hope that makes sense.Alcatel-Lucent Adtran
LIQUIDITY LIQUIDITY
Working capital 4,525,000 Working capital 304,952
Current ratio 1.3 Current ratio 7.1
Quick ratio 1.0 Quick ratio 5.6
Accounts receivable turnover 3.5 Accounts receivable turnover 6.9
Inventory turnover 3.9 Inventory turnover 4.1
Days' sales uncollected 90.3 Days' sales uncollected 53.2
Days' sales in inventory 59.0 Days' sales in inventory 109.8
Total asset turnover 1.1 Total asset turnover 1.0
SOLVENCY SOLVENCY
Debt ratio 81.9% Debt ratio 17.3%
Equity ratio 15.7% Equity ratio 82.7%
Debt-to-equity ratio 5.22 Debt-to-equity ratio 0.21
Times interest earned 22.9 Times interest earned 84.2
PROFITABILITY PROFITABILITY
Profit margin ratio -3.3% Profit margin ratio 18.8%
Gross margin ratio 33.7% Gross margin ratio 59.3%
Return on total assests -2.0% Return on total assests 18.1%
Return on common stockholders' equity-11.4% Return stockholders' equity 22.2%
Explanation / Answer
Liquidity With both businesses involved in providing communications, optics solutions, it is highly like they operate on accrual basis, rather than cash basis. This makes it more important for them to maintain good working capital to operate on a daily basis and for solvency concerns. Although Alcatel's working capital in absolute dollar terms is much larger than Adtran, the current ratio is substantially lower than Adtrans (1.3 compared to 7.1). Combined with looking at the Acid test ratio - which excludes more non liquid current assets e.g. inventory, Adtran's position looks much better liquidity wise. This is because for the amount of current liabilities they have, they have 5-7x more current assets, which will more than adequately cover any liabilities if they become due immediately. Alcatel's ratios indicate they can only match liabilities 1:1 and their working capital requirements are much more larger to run the business than Adtran's. Although Alcatel inventory gets turned over quicker (Days sales in inventory), its sales remain uncollected for much longer than Adtran's (approx one month). Although for credit based sales, Alcatel is collecting it at a quicker rate than Adtran. However, overall on a liquidity basis, it seems Adtran is much more efficient, with plenty of working capital to cover short term obligations, as well as receiving payment for goods and services much more quickly to continue running the business. Solvency It is very clear from these ratio's combined with Adtran's liquidity position that, they are are in safer position from solvency compared to Alcatel. Not only are they able to cover interest more than 80x the interest they incur, this is also reflected in their low debt ratio. The business is efficient and requires little debt and working capital (short and long term funding) to operate. There is alot of debt in Alcatel's financial structure with equity a very small component as indicated by equity and debt-to-equity ratios. Should obligations be due immediately they will have trouble meeting the obligations with the little equity and assets they have. Profitability As expected from the liquidity and solvency analysis, Alcatel has too much working capital and debt to service to allow any profits to be made, and this is exemplified by the negative profit margins, ROA and return on equity. Overall Adtran is in a stronger financial position compared to Alcatel.