Butler Case

We did a historical time-trend ratio analysis to check how the firm's performance is changing over time.

- As you can see the Current ratio and quick ratio: over the years, has been decreasing which shows lower ability to meet or pay its short-term financial obligations.

Cash Ratio: Cash is decreasing year by year and their current liabilities are increasing which is a problem

Financial leverage: -Debt ratio: this ratio has been increasing over time meaning the company is relying heavily on debt financing. This means a higher probability of default but on the good side it provides tax-shield -Interest coverage: has been decreasing over time; lower ability to pay interest

We can conclude that Butler's ability to pay off its short-terms debts obligations is very low. And despite the increase in sales, the company is still relying on borrowed funds to finance daily activities.

Turn over Ratios:

Percentage of Inventory to total Assets: Inventory is a huge portion of Butlers co total assets. The average percentage of the inventory to total assets over the 3 years is 43%. This explains the need for additional funds to be tied up to NWC.

-Total Asset turnover: : Measure how effectively the firm's assets are being managed by comparing investment in assets with sales performance. The ratio should improve with the expected increase in sales.

- Receivable turnover: The ratio is decreasing over the years; which shows a lower ability to collect money from customers.

Average collection period: The collection period increased from 37 days in 1988 to 43 days in 1990.which affects the firm negatively since it could use that money for other means.

-Inventory turnover: Measure how quickly inventory is produced and sold. The ratio is decreasing meaning lower ability to sell inventory

Operating cycle - average time required to acquire inventory, sell it, and collect the money for it.

Cash cycle - average time between "cash out" for inventory and "cash in" from collections. The longer the cash cycle, the more financing needed

The projected operating cycle for 1991 is 110 days and the cash cycle is 62 days.

For the Profitability:

-Net profit margin: Net Income is decreasing despite the fact that sales are increasing.

-Return on Assets (ROA): has been decreasing over time. For each 1$ of assets, less and less net income is generated. But it will increase for the projected year.

-Return on Equity (ROE): ROE has been increasing.