Financial information for a company provides information about the company’s financial performance in comparison with the industry and financial norms. Reporting thus becomes a foundational aspect of management in the company as the company leadership is able to gauge the financial position of the company and plan appropriately depending on the strengths and weaknesses found. This paper will analyze Mason Medical and its financial ratios to determine the importance of such data in the management of the company.
Financial ratios are able to give the company’s position in relation to the market and financial norms. Through the financial ratio information, one can compare different indicators to make inferences of the viability of investment in the company. One of the ratios that can be used is the liquidity ratios. These show the potential investors as well as the investors the company’s ability to handle liability. Liquidity reflects the company’s daily income with the expenses. Therefore, it compares the company’s day-to-day operations and determines ability to pay off company debts. In the same vein, solvency ratios examine the company’s ability to settle long-term debts. These are calculated to determine the company’s ability to meet future financial obligations of the company, most especially in the event of insolvency (Lukason, Laitinen, & Suvas, 2015).
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On the other and, profitability ratios measure the efficiency of the organization in managing investments both in assets and equity. The return on equity, for example, measures the efficiency of the organization in making profits from assets acquired by equity. In return on assets, the calculations also determine the company’s ability to make profits from assets acquired by the company. Profits can be divided into margins or returns. Margins show the company’s ability to make profits with resources at certain measurable intervals, while returns show profits gained at the end of fiscal periods. Returns will normally measure the profit of the venture and the impact is has on the shareholder (Delen, Kuzey, & Uyar, 2013).
Table 1 : Mason Medical Financial Ratios (Financial Morning Star, 2017).
|
Key Ratios |
2014 |
2013 |
Industry Average |
| Current Ratio |
3.820 |
4.57 |
2.883 |
| Acid Test (Quick Ratio) |
3.250 |
3.80 |
0.973 |
| Debt to Asset |
1.950 |
1.87 |
0.447 |
| Receivable Turnover |
4.510 |
4.40 |
13.492 |
| Inventory Turnover |
2.520 |
2.35 |
2.630 |
| Net Profit Margin |
18.020 |
20.90 |
0.176 |
| Asset Turnover |
0.470 |
0.49 |
1.357 |
| Return on Assets |
8.42% |
10.21 |
18% |
| Return on Equity |
16.08% |
19.38 |
22% |
One could consider the financial information above. Using them, one can make determinations about the financial position of the company. The current ratio stands at 3.82. Considering that the threshold value is 1.0, this value presents a very good comparison of assets versus liabilities in Mason Medical. This is a healthy ratio. The quick ratio shows the financial ability of an organization to meet short-term debts. At 3.25, this also shows a healthy ability to meet short-term debts since the threshold value is 1.0. Debt to asset ratio is at 1.95. Again, Mason Medical is on top of its game with regards to financial liquidity.
Profitability is also considered through return on assets and return on equity. The values are 8.42% and 16.02% respectively as well as a net margin of 18.02%, showing a significantly profitable venture in this business. The net margin is quite high comparing the industry value, but returns are quite low in comparison with the industry, showing a need to improve efficiency within the organization.
Turnover values are also present. Compared to the industry, both receivable and inventory turnovers are lower, indicating serious shortcomings with regards to sales. This is because industry receivable turnover is up to 3 times as much as Mason Medical’s value, while inventory turnover is just a few points under the organizational value.
In conclusion, financial ratio information for Mason Medical has revealed the need for better efficiency in the organization as efficiency ratios reveal lower levels of efficiency. Furthermore, the organization is not measuring up to the industry in terms of turnover values. Therefore, financial ratio information has revealed this information, thereby allowing for strategic management and planning.
References
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10) , 3970-3983.
Financial Morning Star. (2017). Medtronic PLC . Retrieved from Financial Morning Star: http://financials.morningstar.com/ratios/r.html?t=MDT
Lukason, O., Laitinen, E. K., & Suvas, A. (2015). Growth patterns of small manufacturing firms before failure: interconnections with financial ratios and nonfinancial variables. International Journal of Industrial Engineering and Management, 6(2) , 59-66.
