Avantronics is the producer of electronic components and accessories which has total assets of $20,000,000. Selected financial ratios for Avantronics and industry averages for firms of similiar size are as given:
Avantronics Year 1 Year 2 Year 3 Industry average
Current ratio 2.09 2.27 2.51 2.24
Quick ratio 1.15 1.12 1.19 1.22
Inventory turnover 2.40 2.18 2.02 3.50
Profit margin 0.14 0.15 0.17 0.11
Debt-to-equity ratio 0.24 0.37 0.44 0.35
Avantronics is reviewed by many entities abowe interest vary and company's financial ratios are part of data being considered. Each of given parties should suggest the action based on the evaluation of Avantronics financial position:
Midcoastal Bank- Bank is processing Avantronics application for the new five year term note. Midcoastal has been banker for Avantronics for many years but should re-evaluate company's financial position for every major transaction.
Ozawa Company- Ozawa is the new supplier to Avantronics and should decide on suitable credit terms to extend to company.
Drucker & Denon- The brokage firm which specializes in stock of electronics firms which are sold over counter. D & D should decide whether it will include Avantronics in the new fund being established for sale to D & D clients.
Working capital management committee- This is the committee of Avantronics management personnel chaired by cheif operating officer. Committee is liable for periodically reviewing company's working position, comparing real data against budgets, and suggesting changes in strategy as required.
a) Explain analytical use of each of five ratios presented in chart.
b) For each of four entities described, find financial ratios, from the ratios presented which would be most valuable as the basis for decision regarding Avantronics.
c) Explain what financial ratios presented in question reveal about Avantronics. Support the answer by citing specific ratio levels and trends, also inter-relationship among the ratios.