Financial Ratio Analysis Case

StilSim Personnel

Assignment 2-2: StilSim Personnel - Financial Ratio Analysis

July 16, 2015

BSAD 495 – F1FF

by

Jory J. Authement

StilSim Personnel - Financial Ratio Analysis

Introduction

        Following is a side-by-side review of financial statements from StilSim and competitor StaffAces.  This format will allow for a comparative look at each category and will highlight areas of strength and /or weakness for StilSim. In this analysis we will be looking into short-term liquidity, long-term solvency, asset management, and profitability measures, interpret the meaning of each area and determine what are the implications to the firm.

Short-term Liquidity

For the first part of this financial analysis, we will lead off by looking at StilSim’s short-term liquidity ration and compare it to that of StaffAces, one of StilSim’s competitors. Before moving ahead, it is best to understand what these ratios measures, and their implications. Short-term liquidity ratios measure a firm’s ability to meet its short-term debt obligations, in other words, pay their bills (Dess, Lumpkin, Eisner & McNamara, 2014).

Short-term ratios

• Current Ratio: StilSim has $8.10 in assets for each $1.00 in liabilities.
• Cash Ratio: StilSim has $5.20 in cash for each $1.00 in liabilities.[pic 1]

As indicated above as well as in the graph, StilSim’s current ratio is slightly over eight times that of their current liabilities. As well, StilSim has slightly over five times the cash on hand over their current liabilities; in essence, StilSim in the short-run, is solvent.  The positive aspect of this is that StilSim’s short-term liquidity looks positive to current and potential short-term creditors. The downside is that this is an indicator of “an inefficient use of cash and other short-term assets. Absent extraordinary circumstances, we would expect to see a current ratio of at least 1, because a current ratio of less than 1 would mean that net working capital (current assets less current liabilities) is negative” (Dess et al., 2014, p.441). In comparison to StaffAces, their current ratio is slightly higher than 2.5 times their current liabilities and their cash on hand is one to one with their liabilities. This indicates that StaffAces is much more efficient in utilizing their short-term assets and cash in comparison to StilSim.

        Strength or Weakness.  

        Interpreting the most current historical data represented above in the graph reflects an allocation disparity between StilSim and StaffAces. However, looking further back in the financial statement, these current and cash ratios proportionally rise and fall concomitantly throughout the years. Albeit, this does not indicate that our current situation is acceptable, but we should recognize that this is not exclusively a weakness or strength. Optimistically and opportunistically, one should see this as an area that could be leveraged to successfully propel StilSim’s business down a more prudent path. Essentially, if these ratios remain relatively close to one (the closer they are, the better) StilSim can remain solvent in the short-run while the residual assets and cash can be deployed to acquire and incorporate efficiency tools such as technology, certification training for staff members, increase marketing, or potentially expand by acquiring another firm.