Riordan Manufacturing’s Financial Ratios
Dr. Riordan, a professor of chemistry who obtained several patents qualified to processing polymers into high tensile potency plastic substrates, founded Riordan Manufacturing. Riordan Manufacturing is a worldwide plastics manufacturer. The company employs 550 people with probable earnings of $46 million. The company is completely owned by Riordan Industries, a Fortune 1000 enterprise with revenues in surplus of $1 billion.
This paper will summarize the financial state of Riordan Manufacturing, Inc. (RMI) based numerous financial ratios, used in conjunction with the financial statements, to analyze the company’s financial condition.
LIQUIDITY RATIOS: SHORT-TERM SOLVENCY
Table 1: Current Ratio
The current ratio is the measure of the degree to which current assets cover current liabilities. A ratio of more than one suggests that it can pay most of its debts at that point in time. The ability to effectively turn products into cash is a good sign of a company's financial state.
The following table provides a comparison of Riordan’s current ratio for 2004 and 2005:
Current assets $14,555,092 2.09 times $14,643,456 2.43 times
Current liabilities $6,974,094 $6,029,696
Current assets are divided by current liabilities to determine the current ratio. Riordan's current ratio is 2.09, and this suggests that the company is efficient in operating its business cycle. The industry ratio is 2.04. Riordan’s current ratio is above industry average, which means that Riordan is able to meet short-term obligations or satisfy short-term creditors.
ACTIVITY RATIOS: ASSET LIQUIDITY, ASSET MANAGEMENT EFFICIENCY
Table 2: Accounts Receivable Turnover Ratio
The accounts receivable (A/R) turnover ratio reflects the relationship between unpaid credit sales to total credit sales. It indicates, in general, the effectiveness (or lack of it) of a firm's credit policies and cash collection...