Final Project Essay Example | Topics and Well Written Essays - 1000 words - 1

Final Project - Essay Example The liquidity ratios assesses a company’s ability to meet short term obligations, profitability ratios helps in assessing a company’s profitability and solvency ratios helps in gauging a company’s ability to meet long term obligations. Ratio analysis helps in identifying various trends and helps in identifying potential strengths and weaknesses of a company. The following is the ratio analysis of MNQ Company: Liquidity Ratios: The current ratio is an indicator of company’s liquidity and helps in assessing the company’s ability to meet short term obligations. MNQ Company’s current ratio has remained under 1 for the 5 years from 2004 to 2008. This shows that the company is facing liquidity issues since the current liabilities are greater than current assets. The current ratio of the company increased in 2007 to 0.98 times and fell to 0.92 times in 2008 and the company has to make efforts to improve its current ratio. Moreover, MNQ Companyâ€⠄¢s quick ratio has also deteriorated to 0.69 times. Quick ratio also helps in assessing a company’s liquidity and deterioration in quick ratio further indicates that MNQ Company’s liquidity position has worsened in 2008. The cash ratio is the strictest measure of a company’s liquidity. MNQ Company’s cash ratio has remained stable from 2004 to 2008. Overall, the company’s liquidity position is not very healthy. Solvency Ratios: The debt ratio indicates a company’s ability to repay its obligations and specifies the percentage of assets that are financed with debt. The total debt ratio of MNQ Company has fallen from 64% in 2004 to 59% in 2008. This is a good sign since the company is reducing its reliance on debt. Companies that have high debt in their capital structure are very risky since most of the cash flows are directed towards debt servicing. But in the case of MNQ Company, the debt ratio has declined and the company has improved its ov erall solvency position. The times interest earned assesses the ability of the company to service the interest payments to its debt holders. MNQ Company’s times interest earned ratio decreased in 2005 but then showed significant improvement. Currently this ratio stands at 11 times and this shows good standing of the company in terms of interest servicing. The company’s EBIT has fluctuated from 2004 to 2008 which has led to fluctuation I the times interest earned ratio. However, MNQ Company has a high times interest earned ratio of 11 times which shows its strong ability to make timely interest payments to its creditors. Cash Coverage of the company is 18.57 times and has increased from 17.34 times in 2004. Cash coverage ratio also shows the company’s ability to pay the interest payments. MNQ Company has a high cash coverage ratio which shows that the company has significant resources to make timely in