Chapin Manufacturing Corporation

1
Chapin Manufacturing Corporation

• Examining financial health by analyzing ratios
  crucial to economic well-being for
• Division A
• Division B
• Division C

2
Ratios Explained

• Current Ratio ratio of current assets to
  current liabilities. It is always best to have a
  ratio of over one in order to stay in business
  during economically slow times, although a ratio
  that is too high may mean that not enough
  reinvestment is occurring and long-run potential
  may not be fully realized.
• Days Sales Outstanding the number of days of
  sales that are in Accounts Receivable at the end
  of the accounting period over the total credit
  sales divided by 365. This is an indicator if
  customers are paying bills on time.
• Inventory Turnover is determined by dividing
  cost of sales for a period by the inventory at
  the end of that period. It is best to strike a
  balance between slow moving inventory (which ties
  up costly storage space and threatens to become
  obsolete) and inventory that turns over so fast
  that a firm may not be able to satisfy consumer
  demands resulting in profit loss.
• Debt to Equity simply the ratio of debt to
  equity. A low percentage is ideal, but as with
  the current ratio, too low may mean that the
  future potential of the company will remain
  untapped.

3
Division ARatio ResultsApparent Strengths
Weaknesses

• Current Ratio 2.44 to 1
• Inventory Turnover 5.56 times
• Strengths
• Healthy current ratio of at least 21.
• Good inventory turnover minimizing storage costs.

• Days Sales Outstanding 42.58
• Debt to Equity 39.47
• Weaknesses
• Debt to Equity a little high may find it
  difficult to stay open in an extended down period
• DSO above thirty, may signify customers are not
  paying on time.

4
Division BRatio ResultsApparent Strengths
Weaknesses

• Current Ratio 3.27 to 1
• Inventory Turnover 5.74 times
• Strengths
• Solid current ratio and debt to equity ratio
  signals that long term growth and the ability to
  outlast down economic periods are present.
• Good inventory turnover minimizes costs.

• Days Sales Outstanding 31.52
• Debt to Equity 18.78
• Weaknesses
• DOS is marginally high, possibly suggesting late
  payments by customers.

5
Division CRatio ResultsApparent Strengths
Weaknesses

• Current Ratio 6.42 to 1
• Inventory Turnover 6 times
• Strengths
• Good inventory turnover means more profit.
• Low DOS signifies less bad debt that needs to be
  factored in to sales, as well as prompt payment.

• Days Sales Outstanding 22.72
• Debt to Equity 5.84
• Weaknesses
• High current ratio and low debt to equity may
  mean that division C is geared more towards
  immediate profits, rather than long term.

6
Chapin Manufacturing CorporationRatio
ResultsApparent Strengths Weaknesses

• Current Ratio 3.27 to 1
• Inventory Turnover 5.74 times
• Strengths
• Good current ratio shows balance between
  reinvestment and creating a safety net for lean
  times.
• Debt to equity also indicative of a balanced
  strategy that doesnt ignore the long term.

• Days Sales Outstanding 31.52
• Debt to Equity 18.78
• Weaknesses
• DOS is a little over thirty days, which may mean
  more defaults on payment and a reduction in
  retained earnings. DOS is only a rough estimate,
  so there is no need for deep concern when the
  difference is so small.

7
Consolidated Company RatiosDays Sales
Outstanding - Inventory Turnover - Debt to
Equity Ratio