D'LEON INC CASE

D'Leon Inc Case

(A)

Financial ratios are useful when firms want to check their financial condition and performance. Financial analysts use these ratios in for different purposes for example if they want to predict the future earnings, cash inflows and dividends. These ratios help in deriving information related to the relationship of two different values and also to identify the problem areas and explore opportunities in the firm. On the other side different stakeholders use these ratios in order to derive useful information related to them for example investors, because they are putting their money on stake so they need to be very careful about it.

Five major categories of financial ratios are:

Liquidity

Efficiency

Financial Leverage

Profitability

Value

(B)

Current Ratio= Current Assets/Current Liabilities

Current Ratio (2013)= $2,680,112/$1,144,800= 2.34

Quick Ratio= Current Assets-Inventory/Current Liabilities

Quick Ratio (2013)= $$2,680,112-$1,716,480/$1,144,800= 0.84

Liquidity Position in 2011

Current Ratio=$1,124,000/$481,600= 2.33

Quick Ratio=$1,124,000-$715,200/$481,600=0.84

Liquidity Position in 2012

Current Ratio=$1,926,802/$1,650,568= 1.7

Quick Ratio=$1,926,802-$1,287,360/$1,650,568= 0.38

We conclude that by the above calculations the liquidity position in 2011 and 2013 is almost the same in terms of current and quick ratio but in 2011 it was not as good as in both these years have its current ratio has decreased by 0.6 and quick ratio also decreased to 0.38 from 0.84 which is a huge difference it means that they have stuck a lot of their current assets into their inventories.

These different types of analyst do have different types of interests in the company but liquidity is important for everyone whether a manager or a banker or a shareholder because everyone has its own stake they do look at the firm from different perspective but liquidity is important for all.

(C)

Calculations for 2013

Inventory Turnover= Sales/Inventory=$7,035,600/$1,716,480= 4.09 Times

Day Sales Outstanding=Receivables/[Annual sales/360]= $878,000/[$7,035,600/360]=44.92

Fixed Asset Turnover=Sales/Net Fixed Assets=$7,035,600/$ 817,040= 8.61Times

Total Asset Turnover=Sales/Total Assets=$7,035,600/$3,497,152= 2.01Times

The overall picture of utilization of assets seems to be lower than other ...