Preparing common-size statements; analyzing profitability; making
The quick ratio is a measure of liquidity which indicates how easily a business can pay its short-term obligations. The industry average for this metric is 1.3 while McDonough Products’ quick ratio is 2.1 indicating that they are able to pay their short-term debts more quickly than the industry average.
The current ratio is another measure of liquidity which compares a company’s current assets to its current liabilities in order to assess if it has enough resources to cover immediate expenses. The industry average for this metric is 2.2 while McDonough Products’ current ratio sits at 3.2 showing that they have ample funds available for their most pressing obligations.
Next we have the debt to equity (D/E) ratio which measures a company’s level of leverage or debt relative to its equity capitalization. The D/E ration for McDonough Products comes in at 0.6 which is slightly lower than the industry standard of 0.7 suggesting that they are taking less risk with regards to leveraging debt.
Finally, both ROA and ROE are metrics used for assessing profitability; however, ROA looks at profit as it relates total assets while ROE looks at profits relative total shareholder’s equity respectively—for this comparison we will look at both figures side by side since each provides unique insight into how well a company utilizes its resources and how profitable it actually is when all costs associated with doing business are taken into account.
McDonough products has an impressive 11% ROA and 22% ROE versus the respective 5% and 10% seen across other firms in the same sector—indicating that they produce greater returns on their investments compared with competitors in the space and thus hold a financial position better than many others within their industry avaerage.
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