Analysis And Recommendations For Strong Tie Ltd Essay
From: Robert Markwell, Financial Consultant
Subject: Analysis and recommendations for Strong Tie LTD.
To: David Johnstone, CEO, Strong Tie LTD.
Strong Tie’s liquidity ratios have decreased each year from 2006-2008. Typically, liquidity ratios measure how swiftly assets can be turned into cash in order to cover the company 's short-term obligations. The industry average in current ratio is 4, which Strong Tie fell below in 2008 with a 3.13. This drop could correlate with the decrease in cash and temporary investments over the same time frame. If this declining trend continues the company could find itself unable to pay all required obligations. One of the keys to stabilizing the ratio is to increase the value of current assets while reducing current liabilities
The company’s inventory turnover is progressively decreasing. This means that Strong Tie is holding its inventory longer than expected and as the inventory ratio decreases the days to sell is increasing. Raw Materials inventory has been steadily increasing, going up nearly 7 points since 2006 and currently 10 points above the industry average. This is an alarming issue due to the fact that the WIP inventory and finished goods inventory are decreasing. With the company’s inventory turnover decreasing, it means that Strong Tie is holding its inventory longer than expected and as the inventory ratio decreases the days to sell is increasing. Another indication…