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Garners Platoon Mental Health Care Mini Case

Autor:   •  March 8, 2011  •  Case Study  •  1,014 Words (5 Pages)  •  2,002 Views

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MINI CASE P. 105-106

Garners Platoon Mental Health Care, Inc.

Liquidity Ratios

The liquidity ratios of the firm are slightly below the industry averages. This is due to inventory and accounts receivable making up a significantly larger portion of the current assets than cash and marketable securities. This may be indicative of a problem with inventory management and/or collection on accounts.

Asset Management Ratios

With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days' sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and Garners' does not achieve this.

The accounts receivable management ratios show a collection period that's 9 days lower than the industry average. This is a sign of good management as the company wants to collect payment as quickly as it can. The company might be too tight with its crediting terms, and can possibly look at relaxing its crediting policy a little. The accounts receivable turnover ratio is 4.49 which further show that the company has an efficient collection system in place.

The average payment period for the company is 34 days higher than the industry average. The accounts payable turnover is 2.73. So long as the company is paying its debt on time, this shows that the company is minimizing opportunity costs through proper debt management. It is beneficial for a firm to pay debt on time but not necessarily early.

When looking at the fixed asset ratio it is .4 below industry average and the sales to working capital ratio is nearly the same. In looking at the company there may be issues with whether management is making full use of its assets. Considering the total asset management ratio is slightly higher than industry average, it shows that it is using its assets correctly. The capital intensity ratio shows that the dollars of assets needed to produce sales for the company is below the industry average, and again shows that assets are being used well. The sales to working capital ratio show that the company's management is running the firm well.

Debt Management Ratios

The company' has a debt ratio at 56% which is above the industry average, and debt to equity ratio is higher than the industry average as well. The equity multiplier is also a little above the industry average. The cash flow available to stockholders is increased; however, the company may not be making the best decisions in balancing the use of debt and equity. Using more equity in financing puts the firm at risk of being unable to make its debt payments. This can

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