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ABC Ratio Analysis

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ABC Ratio Analysis

ABC is a specialty retailer with total current assets of $164000 comprising of cash,

accounts relievable, interest receivable and inventories as $92000, $21000, $1000, and $50000

respectively. Its total current liabilities were $56000 comprising of $48000 accounts payables

and $8000 interest payable. Using this data, quick, current, and cash ratios of the ABC Company

would be as calculated below:

Quick Ratio = Total Current Assets-Inventory/Total Current Liabilities

= (164000-50000)/56000

= 1.9643

Current Ratio = Total Current Assets/Total Current Liabilities

= 164000/56000

= 2.9286

Cash Ratio = Cash and Cash Equivalents/Current Liabilities

= 92000/56000

= 1.6429

The industry average current ratio from IBIS World is 1.27. It, therefore, implies that

ABC Company has a better liquidity compared to the industry average, showing a good financial

health compared to competitors in the industry.

The total assets, total equity, total debt and long-term debts for ABC’s are provided as

$292000, $80000, 136000, and $156000 respectively. Using these data, one can compute its

leverage ratios including Total Debt which are demonstrated below:

Total Debt to Total Assets Ratio = Total Debt/Total Assets

= 136000/292000
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= 0.4658

Long-term Debt Ratio = Total Debt/Total Assets

= 80000/292000

= 0.2740

Debt to equity ratio = Total Debt/Total Equity

= 136000/156000

= 0.8718

The average specialty retail industry debt ratio on the IBIS World database is 0.68. ABC

with a debt ratio of 0.27 shows that it has a better leverage compared to its peers in the industry.

The company uses less debt compared to its peers to finance its assets.

The analysis above demonstrates that ABC has a better liquidity and leverage compared

to industry average. This would imply, therefore, that the company has a better financial health

compared to its peers in the industry.