Overall evaluation Essay

Submitted By denilanguyen
Words: 545
Pages: 3

1. Overall evaluation of PCM’s financial condition and performance and market assessment
1.1. Total Assets
From 2011 to 2013, PCM’s Total assets increased gradually. The increases came mostly from that in Accounts Receivable and partially from that in Inventory. Accounts Receivable also accounted for the highest percentage in Total assets (average of 30.89% while the Industry average was only 20%). However, in considering Accounts Receivable Turnover, the ratio was declining from year to year (8.08 in 2011, 6.34 in 2012 and 5.11 in 2013- much lower than Industry average: 9.4) which means the efficiency of extension of credit policies and collection of accounts receivable was decreasing over the period. The company should re-assess the credit policies to ensure timely collection.
Regard of Inventory, the numbers went up slightly about 3% per year. Despite the increasing in Inventory numbers, Inventory Turnover ratio experienced a sharp drop over the period (from 7.81 in 2011 to 5.85 in 2012 and to 4.54 in 2013). The sales were getting lower and lower as the products tended to deteriorate as they sat in a warehouse. However, it was still higher than Industry average, which was 3.8.
All other types of assets went down moderately in this period (up to 2%). Fixed Assets Turnover and Total Assets Turnover ratios also fell as the company’s ability to generate net sales from fixed assets and total assets declined. The ratios were almost equal to the Industry average.
1.2. Total liabilities and owners’ equity
As mentioned above, from 2011 to 2013, PCM’s Total assets (also known as Total liabilities and Owners’ Equity) increased gradually. The increases came from the increasing liabilities (from all Notes Payable, Accounts Payable and Long-term Liabilities). The company could not attract more investment from stockholders and investors as it kept borrowing money. All the figures were much higher than the Industry average. As a result, the Current Ratio and the Acid-test Ratio dipped (from 2.04 in 2011 to 1.54 in 2013 and from 0.99 in 2011 to 0.71 in 2013 respectively). The Total debt ratio rose from 48.65% in 2011 to 69.68% in 2013. At the meantime, the Time interest earned ratio went down from 5.99 to 4.19. The company’s ability to pay its financial obligations plunged. The company