Ratio Analysis to Determine Corporate Health Essay Example for Free

Ratio Analysis to Determine Corporate Health EssayOne must handle many factors before deciding whether or not to invest in a company. The following is an analysis and comparison of the health of two well know companies, Exxon and Wal-Mart. Some of the factors that were analyzed include current dimensionn, inventory turnover, accounts due 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. lineage turnover is another indicator of a companys ability to pay short-term debt. Specifically, it is the number of durations a co mpanys honest inventory is sold during a period (Wild, 2008). Wal-Marts inventory turnover of 9. indicates that it may be holding more(prenominal) 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 figure 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 liquidity 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 mention terms and more aggressive collection efforts to avoid its resources being tied up in accounts receivables. On the other hand, Wal-Marts high turnover implies the antonym management should consider usi ng more liberal credit terms.While accounts receivable turnover measures the liquidity of accounts receivables, days sales in inventory is efficacious 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 appears to be a more solid company in which a first time stock-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.