Soda Pop Organics Case Study
Current Ratio - Soda Pop Organics current ratio is 1.07. What this means is that for ever $1 Organics owes, it has $1.07 in assets to payback those debts. This ratio is favorable and a good indication that
Organics is managing their assets and liabilities wisely. Future investors can feel good about this ratio because the risk based on this metric is low. Shareholders should also be pleased with this ratio as the management team is effectively managing their debt.
Quick Ratio - The quick ratio came in at 0.96 which is less than 1. This means that the company may struggle a bit when if it has to quickly liquidate its assets to pay current obligations. They may be an indication that they are struggling to grow the business …show more content…
This ratio is calculated under the impression that a business will liquidate all its current assets to pay their debt and that is not realistic because that would mean the company is left unable to operate. This again is a worst case scenario.
Cash Ratio - This is an extreme measurement of the companies liquidity. Essentially the cash ratio is the worst case scenario and creditors generally disregard this information. Organics cash ratio is at 0.58.
Although the number is below 1 to 1, it does not necessarily mean the business can not pay its debt back.
A higher number is not always favorable. It does not make financial sense for a business to keep an excess amount of cash on hand because that cash can be used to generate more revenue.
Debt Ratio - Organics debt ratio came in a little higher than the 50% desired bench mark. Their debt ratio is a measure of how much debt they are leveraging to finance this business. In this instance, Organics is relying heavily on loans to keep them going. If they were to take on any more debt, their ratio would increase and lenders would no longer consider them for more financing. It is important to understand …show more content…
Future growth – Based on the information above, Soda Pop Organics seems to be vesting a large amount of money into the growth of the company. As stated previously, their debt ratio at the moment is showing hire than the desired 50 percent range. They have taken on a lot of debt because of the amount of products they have in development as well as their plans to expand. Even with the debt ratio that high they are still able to product a 61% profit margin and a 9.9% return on assets. Based on the numbers it seems like they are having some trouble collecting on their receivables. Their cash ratio came in low so they may be relying too heavily on their assets to drive reneue. If their heavy funding of expansion through debt does not yield a sufficient amount of revenue, they could be putting themselves at risk
Recommendations – For the future, I would recommend that Organics management team closely monitor their process for collecting payments. Their quick ratio came in under 1 so it could mean they are collecting slowly or extending too long of terms. I would also recommend that they not rely so heavily on their debt to finance their operations and be more effective in using their invested