These three ratios and the current ratio is used to analyze the working capital efficiency. Firm’s days sales outstanding helps to understand how many days it takes the firm to get the money from the creditors to which they have sold the goods. Lesser this ratio better it is for the firm. The next ratio days sales of inventory helps to get an idea that in how many days the firm clears its inventory. This ratio should also be less. But here we see the firm has high day’s sales of inventory. Next is the days accounts payable. This ratio tells how long the firm takes it to pay its debtors. The number of days should be high for the firm.
The only major concern is the days sales of inventory which is high for this firm else all the working capital ratios are fine.
Next are the solvency ratios which give an idea about the company long term prospects. Major ratios in this section are debt to equity, debt ratio (debt to total assets), and financial leverage. Debt to equity ratio should normally be below one. Revenues for this industry are not stable; cash flows are cyclical, operating margins are sustainable and companies pay high dividends to the shareholders. Thus this industry can be said to be cyclical industry where the upside chances are very high and the downside is also high (Noreen, Smith & Mackey., 1995).