Ratio Analysis to Determine Corporate Health Essay Example for Free

Ratio Analysis to Determine Corporate Health EssayOne must treat many factors before deciding whether or not to invest in a company. The following is an synopsis and comparison of the health of two well known companies, Exxon and Wal-Mart. Some of the factors that were analyzed include current dimensionn, record turnover, accounts receivable turnover, and days sales in inventory. Most of the values used for the calculations were obtained from Yahoo Finance. Current ratio evaluates a companys ability to pay its short-term obligations (Wild, 2008). Exxons current ratio of 1. indicates that it should not have any issues paying its short-term obligations.In contrast, Wal-Marts current ratio of 0. 88, indicates that the companys current liabilities exceed current assets and thus investors should be doubtful of its ability to pay short-term obligations. register turnover is another indicator of a companys ability to pay short-term debt. Specifically, it is the subroutine of ti mes a companys average inventory is sold during a period (Wild, 2008). Wal-Marts inventory turnover of 9. indicates that it may be holding much inventory than it needs, and thus it may be using its assets in efficiently. Exxons inventory turnover of 28. 31 is more preferable, as long as inventory adequately meets demand (Wild, 2008).These numbers show that Wal-Mart may be having difficulties paying its short-term debt and thus caution should be warranted. Accounts receivable turnover measure the quality and fluidity of accounts receivable. Thus it indicates how often receivable are received and collected during the period (Wild, 2008). Exxons accounts receivable turnover is 15. while Walmarts is 107. 3. Exxons low turnover suggests management should consider stricter credit terms and more aggressive collection efforts to vacate its resources being tied up in accounts receivables. On the other hand, Wal-Marts high turnover implies the turnabout management should consider using mor e liberal credit terms.While accounts receivable turnover measures the liquidity of accounts receivables, days sales in inventory is useful in evaluating liquidity of inventory (Wild, 2008). Exxons days sales in inventory is 13. 2 and Wal-Marts is 38. Exxons lower days sales in inventory value indicates that the company uses its resources more efficiently. Conclusion All things considered, Exxon attends to be a more unwavering company in which a first time melodic line-buyer should invest. While both are major companies, which appear to have solid numbers, Exxon seems to be the more stable and reliable company. Specifically Exxon seems to manage its assets better and seems more likely to be able to pay its short term debt. Nonetheless, one should invest in stock that he or she feels better represents his or her goals.