Essay: Solvency ratios for Nautica
1) Debt ratio = total liabilities/ total assets = 99,490/ 422,070 = 0.2357 = 23.57%
2) Debt to equity ratio = total liabilities/ total equity = 99,490/ 322,580 = 0.3084
3) Times interest earned = earnings before interest and income taxes/ interest expense = 27,755/ 1,474= 18.83 times
4) Operating cash flow coverage ratio = cash provided by operating activities/ average total liabilities = 91,148/ 96,266 = 0.95
b). based on the ratios, write a summary of your impression of the company’s profitability, efficiency, liquidity, and solvency.
Considering the profitability ratios, it is worthy noting that the profitability of the firm is impressive since it is able to earn considerable amount of profit from the sales, and the assets are converted to net income in considerable amounts. Further, common stock holder’s equity is utilized wisely with a return of more than 1 and Price to earnings ratio is high of 26.02 times.
The efficiency ratios show that there is efficient production since the receivables turnover and the inventory turnover ratios are quite high.
The liquidity ratios are more than one swing that the firm is able to cater for its current liabilities without depending on its fixed assets. They can be paid by liquefying current assets only.
The Debt ratio figure is high implying that the assets financed by debt are low. Debt to equity ratio is a low figure showing that the firm does not rely highly on debts for capital but rather relies on stockholder’s equity. Times interest earned shows that the company is able to pay out for its interest expenses at a rate of 18.83 times, which is an impressive figure. However, Operating cash flow coverage ratio figure is low than one showing that the cash provided by operating expenses is not sufficient.