Rondo Company Essay

824 Words 4 Pages
Liquidity

Rondo's Current Ratio is a steady at 2.0 compared to the industry average of 1.4. This indicates the company will not have a problem covering its current liabilities. Rondo's quick ratio is also steady at 1.4. The company can cover its short-term debt 1.4 times over without selling off its inventory. Rondo's performance is good in this area.

Asset Management

Rondo's Inventory Ratio declined to 9.5 in 2005, down from a ratio of 10 in 2003 and 2004. Rondo's sales improved year-over-year and the decline in inventory turns may be the result of carrying more inventory in response to increased sales. However, Rondo is still carrying too much inventory or the company may have excess obsolete inventory. Rondo needs to
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Rondo's Debt Ratio dropped from 45% in 2003 to 38% in 2005. This is a positive trend, as creditors prefer a lower ratio.(They are still below industry avg in debt to assets. This is actually a good thing.) Creditors are more reluctant to lend more money if the ratio is too high. The industry average is 40% and Rondo is below this at 38%. Rondo's performance is good in this area.

Rondo has shown significant improvement in the Times Interest Earned (TIE) ratio. In 2003, Rondo's TIE ratio was 4.9 and in 2005, it's 7.6. This means Rondo's interest is covered 7.6 times. Rondo's performance is good in this area

Profitability

Rondo's profit margin has shown improvement from 7% to 8%, but it is still below the industry average of 10%. Rondo's poor performance appears to be the result of inefficient operations - costs are too high. Rondo's is improving in this area, but must do better to remain competitive. (Will they have bad debt in the future?)

Rondo has improved in the Basic Earning Power ratio each of the last three years, from 13% to 15%. Rondo will continue to improve in this area if they can cut costs and improve inventory turnover. Rondo's performance is improving in this area.

Rondo's Return on Assets (ROA) is improving but at 8% it is still significantly below the industry average of 11%. Rondo's poor performance in this area is a result of their low basic earning power. Net income would improve if

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