MFRD Essay Example | Topics and Well Written Essays - 2000 words

MFRD - Essay Example Further NB has earned 12. 88% on capital employed as against industry average of 18.5%. According the profitability performance of the company is quite inefficient when compared with industry averages. Liquidity is the strong point of NB and it can be said that the company is in a position to meet it current obligations as and when those become due. The current ratio of NB is 2.14: 1 and that is quite strong when compared with industry average of 1.9: 1. Similarly the company’s quick ratio of NB is 1.52 as against industry average of 1.27. It has established that current ratio of 2:1 and quick ratio of 1:1 is considered optimum for any industry, and in case of NB both the ratios are above the required standard. Therefore NB can be considered as a solvent company that will meet its current liabilities as and when those become due. For analyzing the efficiency of the company four ratios are considered in this assessment. Total asset turnover that analyzes the effective utilization of total assets in generation of sales is 3.13 times and that is marginally behind the industry average of 3.91. Stock turnover ratio reflects liquidity of the stocks of the company. The company has rotated its stocks during 2008 for 13.93 times as against industry average of 18.3 times. Therefore company lacks efficiency on the aspect of rotating its stocks to meet cost of sales as per industry standards. As far as credit period is concerned, the company takes 40.43 days in collection of credit sales as against industry average of 52 days. On the other hand suppliers provide 36.9 days of credit for purchases and the industry average is 49 days. In other words company is managing credit sales collection and credit purchase payments quite effectively, and probably that is the reason for its sound liquidity. Above all 44.55 % of total assets have been financed by debt capital. The industry average is lower than this of