CONCLUSION

In comparison from 2018 to 2019, Company A's performance is

deteriorating. As you can see the current ratio and quick ratio decreased from 1.07 to

0.67 and 1.26 to 0.53. Liquidity ratio decreasing results in less Working capital for the

company to run the business smoothly. There is a drastic decrease in Profitability ratios

in comparison to previous years. Company A should reconsider all its revenue related

decisions.The Debt to equity ratio is increased from previous year. This indicates that

Company A has borrowed this year resulting in the highest interest expense. High

interest expense leads to low operating income and net income. Even the efficiency

ratio is also affected this year. Due to sudden decrease in the sales, the profitability of

the company has decreased. However, it can also be noticed that operating expenses

have increased over the years because operating margin ratio has decreased with

greater difference than net profit margin. Activity ratios show improvement in age of

inventory and payable but it is concluded as the negative point for the business. While

decrease in other activity ratios means the total sales in the response of the assets has

decreased also the inventory turnover suffers in comparison to the last year.

To begin with the first financial ratio - Liquidity. We can see that the ability

of Company A to pay off its debt obligations was decreased because it was below 1 for

the current year 2019. This result indicates that Company A is in bad financial health

and more likely to face financial hardships that can affect its ability to borrow to the

creditors and lenders because liquidity ratio is one of the financial ratios that the lenders

review before they approve the loan of the company. Next, for profitability ratio, it was
also decreased which we can infer that Company A was not performing well by

generating revenues. Furthermore, Company A was not efficient in turning their

business activities into profits and not properly utilized its assets in order to produce

revenue that will add value to the shareholders. Also, Company A's leverage ratio was

increased except in its Time Interest Ratio (TIR) that was decreased in the current year

which means that Company A' ability to pay its Interest Expense from different loans

and liabilities was reduced, but it's still normal since TIR is above 2.5. Overall, leverage

ratios of Company A indicates that the company has taken a larger amount of debt than

its capacity and that they might not be able to service the obligations with the on-going

cash flows. So, basically, Company A was aggressive in financing its growth with debt.

Lastly, efficiency ratios of Company A were unfavourable since most of them resulted in

declining because of the possibility that Company A didn't manage, utilize and use

show age to use its assets and manage its liabilities effectively in the current period or

in the short-term.
Recommendation

In order for Company A to have better and efficient results of its Financial

ratios, company A should be analytic in making decisions with regards to its operations.

Profitability should be increased by improving the sales and decreasing the operating

costs of the business. To make profitability ratio efficient, Company A can consider the

controlling of costs, increase the price of the products and expand markets. Interest

expense must be managed by decreasing the interest payment period. For liquidity

ratio, reduce its current liabilities by paying off its debt and cut some overhead

expenses. Non-operating costs should be decreased as it can be seen that it increases

in the year 2019 from 2018. Debt collection period must be decreased and payable age

must be improved. Next for leverage ratio, Company A should still control its liabilities

that they use for investments. the return on investment should be higher than its

liabilities. Company should focus on decreasing the current liability and increasing the

current assets by managing the working capital. Fixed asset portion in the total assets

must be improved and decrease the non-current liability portion by decreasing the long-

term debt. Lastly, for efficiency ratio, Company A should manage its receivables in

order to easily use the cash for investments. Also, the time of converting inventory into

cash should also observe because company A inventory took almost a month before it

sold to the customers. Company A should utilize its assets also in order to generate

more profit by using its assets to generate more revenue. Company A should reconsider

its decision regarding Debt it borrowed in 2019. It should try to increase operating

income by doing additional marketing or it should negotiate with lenders about the
interest rate.In the long run, survival of Company A will be at stake if not acted

immediately.