Rapid Repair Essay

882 Words Mar 2nd, 2016 4 Pages
Shen Jiang
Finance 6210
Individual Assignment 1---Rapid Repair Auto Parts

Given current financial reports, Rapid Repair has two main issues: over-leverage and cash conversion problems.
Looking at the firm’s current ratios and quick ratios (Table 3), both decreased from 2008 to 2012, which means Although current ratio in 2012 is higher than the industrial average due to inventory level, the quick ratio in 2012 is significantly lower than the industry because inventory as a current asset takes a great portion. This indicates that the firm’s ability to pay off short term debt is weak. Moreover, the cash conversion cycle is 265 days, which means that it takes the firm 265 days to convert the inventory to cash. The inventory level is
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2. Optimize the capital structure. The firm should make good use of its currently great profitability to issue more equity to cover some of its debt and lower its debt level gradually. Rapid Repair should keep forecasting its free cash flow to ensure a minimum level of free cash flow. If necessary, sell some fixed assets to maintain the minimum balance. Table 3 | | | | | | | | | | | | | | | | | | Rapid Repair Auto Parts | | | | | | | | | | | | | | | | | | Industry Ratios | | | | | | | | | | | Rapid Repair | | | | | | Industry Average | | | 2008 | 2009 | 2010 | 2011 | 2012 | | 2012 | | | | | | | | | | Liquidity | | | | | | | | | Current Ratio | | 6.34 | 3.69 | 3.44 | 3.45 | 3.36 | | 1.84 | Quick Ratio | | 2.52 | 2.01 | 0.55 | 0.58 | 0.53 | | 0.84 | | | | | | | | | | Asset Management | | | | | | | | | Days Sales Outstanding | | 6.1 | 6.7 | 9.4 | 32.4 | 31.8 | | 24.3 | Inventory Turnover (Sales) | | 2.39 | 2.43 | 1.53 | 1.64 | 1.71 | | 4.7 | Inventory Turnover (COGS) | | 1.92 | 1.99 | 1.29 | 1.40 | 1.44 | | 2.3 | Total Asset Turnover | | 0.94 | 0.83 | 0.78 | 0.88 | 1.01 | | 2.1 | Fixed Asset Turnover | | 2.67 | 3.28 | 1.95 | 2.50 | 3.41 | | 5.7 | | | | | | | | | | Leverage | | | | | | | | | LT

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