Ratio analysis
Ratio analysis
1. Liquidity ratio
The liquidity ratios measure the company’s ability to meet its short-term debt obligations (Intermediate accounting- Kieso, D.E., J.J. Weygandt and T.D. Warfield). These ratios include current ratios, quick ratios, and cash ratio.
Current ratio: the current ratio of GM has increased from 1.29 in 2012 to 1.30 in 2013. With a higher ratio in 2013, it’s better for GM to meet its short-term obligation.
Quick ratio: the quick ratio of GM has improved from 0.79 in 2012 to 0.85 in 2013. With a quick ratio of less than 1 (0.85), it indicates that GM is having a bad sign because it cannot pay its current liabilities. (Quick Ratio- Ready Ratio)
2. Activity ratios The activity ratios measure how well the company uses its assets (Intermediate accounting- Kieso, D.E., J.J. Weygandt and T.D. Warfield). These ratios include receivable turnover, inventory turnover, and asset turnover.
Receivable turnover ratio: the receivable ratio of GM has increased from 14.46 in 2012 to 17.82 in 2013. This is a significant increase because this ratio decreased from 14.94 in 2011 to 14.46 in 2012. It means that GM is getting better in collecting its account receivables. (Receivable ratio- Ready Ratio)
Inventory turnover ratios: the inventory ratio of GM has slightly increased from 9.53 in 2012 to 9.61 in 2013. This ratio indicates a better performance of GM in controlling inventory.
3. Profitability ratios The profitability ratios measure a company’s ability to generate profit from sales (Profitability ratios- Ready Ratio). These ratios include rate of return on assets, and rate of return on common stock.
Rate of return on assets: the return on asset of GM has decreased from 4.14% in 2012 to 3.21% in 2013. It implies that GM has $0.03 of net income for every dollar invested in 2013.
Rate of return on equity: the return of equity of GM has decreased significantly from 17.07% in 2012 to 12.55% in 2013.
4. Coverage ratios
Coverage ratios measure a company’s
1. Liquidity ratio
The liquidity ratios measure the company’s ability to meet its short-term debt obligations (Intermediate accounting- Kieso, D.E., J.J. Weygandt and T.D. Warfield). These ratios include current ratios, quick ratios, and cash ratio.
Current ratio: the current ratio of GM has increased from 1.29 in 2012 to 1.30 in 2013. With a higher ratio in 2013, it’s better for GM to meet its short-term obligation.
Quick ratio: the quick ratio of GM has improved from 0.79 in 2012 to 0.85 in 2013. With a quick ratio of less than 1 (0.85), it indicates that GM is having a bad sign because it cannot pay its current liabilities. (Quick Ratio- Ready Ratio)
2. Activity ratios The activity ratios measure how well the company uses its assets (Intermediate accounting- Kieso, D.E., J.J. Weygandt and T.D. Warfield). These ratios include receivable turnover, inventory turnover, and asset turnover.
Receivable turnover ratio: the receivable ratio of GM has increased from 14.46 in 2012 to 17.82 in 2013. This is a significant increase because this ratio decreased from 14.94 in 2011 to 14.46 in 2012. It means that GM is getting better in collecting its account receivables. (Receivable ratio- Ready Ratio)
Inventory turnover ratios: the inventory ratio of GM has slightly increased from 9.53 in 2012 to 9.61 in 2013. This ratio indicates a better performance of GM in controlling inventory.
3. Profitability ratios The profitability ratios measure a company’s ability to generate profit from sales (Profitability ratios- Ready Ratio). These ratios include rate of return on assets, and rate of return on common stock.
Rate of return on assets: the return on asset of GM has decreased from 4.14% in 2012 to 3.21% in 2013. It implies that GM has $0.03 of net income for every dollar invested in 2013.
Rate of return on equity: the return of equity of GM has decreased significantly from 17.07% in 2012 to 12.55% in 2013.
4. Coverage ratios
Coverage ratios measure a company’s