Assignment:
Step 1: Populate the answers in the Financial ratios Word .doc chart for years 2006, 2007, and 2008 based on the financial statements in the Darlarna Furniture Ltd. case by Dan Thompson.
Step 2: Assist with notes on the following sections:
1. Liquidity
2. Asset management
3. Long-term debt-paying ability
4. Profitability
- Comment on the differences between Darlarna's ratios and the industry averages.
- Conduct a vertical analysis of income statements, balance sheets, and cash flow statements.
- Determine the trends evident in the financial statements
Describe the financial problems Darlarna currently faces in each area. Determine possible causes of each problem. Propose actions that Darlarna should take to prevent bankruptcy. Analyze the importance of using these financial ratios and statements to plan actions that would address potential problems.
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Liquidity
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2006
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2007
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2008
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Industry average
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Current ratio
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2.5
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Cash ratio
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0.5
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Asset Management
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Inventory turnover in days
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90
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A/R turnover in days
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60
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A/P turnover in days
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15
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Cash conversion cycle
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135
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Fixed asset turnover ration
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4.01
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Total asset turnover ration
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2.21
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Long-Term Debt Paying Ability
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Long-term debt to total capitalization
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30%
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Cash flow coverage
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3.21
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Effective interest rate
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8%
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Maximum borrowing
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-
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Profitability
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Gross profit margin
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45%
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Operating profit margin
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25%
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Net profit margin
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10%
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ROA
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22%
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ROE
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31%
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