Imperial Electronics Ltd.
Imperial Electronics Ltd is a publicly owned company with 100,000 common shares outstanding. At the last executive committee meeting, the CEO of the company informed the board members of the economic slowdown that she anticipated during the next several years. She also told them that several US firms were considering becoming more aggressive in the industry, particularly in the Canadian Market.
Because of these external threats, management of Imperial Electronics Ltd. Anticipates more difficult times ahead. For this reason, company management is now trying to watch its financial ratios more closely in order to keep the firm under control.
On the basis of the information contained in the company’s financial statements, calculate and comment on Imperial Electronics Ltd.’s December 31, 2009, financial ratios by comparing them to the industry average. The common shares are valued on the stock market at $120.00.
Calculate the following ratios, compare to industry (included below) and comment whether Imperial Electronics is doing better or worse than industry.
a) Current ratio
b) Quick ratio
c) Debt to total assets
d) Debt to equity
e) Times interest earned
f) Fixed charges coverage
g) Average collection period
h) Inventory turnover
i) Capital assets turnover
j) Total assets turnover
k) Return on total assets
l) Return on equity
Industry comparative ratios
a) Current ratio 1.95 times
b) Quick ratio 1.03 times
c) Debt to total assets 55%
d) Debt to equity 1.21 times
e) Times interest earned 6.43 times
f) Fixed charges coverage 4.51 times
g) Average collection period 35.00 days
h) Inventory turnover 7.00 times
i) Capital assets turnover 5.10 times
j) Total assets turnover 2.90 times
k) Return on total assets 6.00%
l) Return on equity 21.00%