The paper "Straits Resources Limited Financial Analysis " is a perfect example of a finance and accounting assignment. The liquidity ratios indicate that the company is not capable of meeting its short term obligations. The current ratio dropped from 0.41 to 0.28 from 2013 to 2014 respectively. However, the ratio is still lower than 1, which is the industry average. The ratio of less than one means that the company does not have enough current assets to meet its current obligations. The current ratio also dropped from 0.32 to 1.9 from 2013 to 2014 respectively.
Still, the company cannot be able to meet its short term obligations without its inventories. The company should not commit in too much short term obligation as this would hamper its long term growth (Straight resources limited, 2014; p65). Activity The activity ratios indicate that the company management is not efficient enough. The receivables turnover ratio increased from 16.6 in 2013 to 18.7 in 2014; this indicates how fast the company converts inventories into sales. Although there is an improvement, the company can still do more in converting inventories into sales (Straight resources limited, 2014; p63& 65). Profitability The profitability ratios indicate that the company is not able to earn good returns on the resources committed to the business.
The net profit ratio improved from a loss in 2013 of (1.44) to o. 28 in 2014. The current ratio of 0.28 is somehow favourable. The company can still do more to improve its profitability. The company made a net loss in 2013. The return on assets is impressive for 2014 at 0.32; the return on equity is also good at 10.0 in 2014 as well.
This means that the management of the company should increase its ability in controlling expenses and making wise investment decisions to earn good returns on capital committed (Straight resources limited, 2014; p63). Solvency The 2014 debt to equity ratio is 0.74; this was down from 1.1.77 in 2013. This is below the industry average and recommended level of 70% equity and 30% debt. Moreover, the debt to asset ratio is 0.02 for 2014 and 0.25 for 2013; this means the company has more debt than assets.
The company has 74% debt and 26% equity; this means that the company is highly geared. The solvency ratios indicate that the company does not have the ability to raise additional debt; its liquidity is very high. The capacity of the company to pay its liabilities on time is in danger.