IntroductionTeam A will be reviewing financial information from 2005 and 2006 for Clorox Corporation and Ecolab, Incorporated. The paper will identify specifics in reference to there financial performance with a ratio analysis completed in profitability, asset utilization, and liquidity and debt utilization ratios along with a cash flow statement analysis.
Ratios are used widely by organizations to measure and identify how they are operating in reference to performance and if they are meeting the goals of the organization. These ratios are then used not only to measure one company's performance but to compare them to other organizations in the same business and company size. These same comparisons could also be used by customers to evaluate a company when researching who they would like to do business with. According to Block and Hirt (2005) "After we have computed the appropriate ration, we must compare our results to those achieved by similar firms in our industry, as well as to our own performance record".
According to Block et al. (2005), "Ratios are also important to people in the various functional areas of a business. The marketing manager, the head of production, the human resource manager, and so on, must all be familiar with ration analysis". (p.55). Individuals in the above positions need to not only know about ratios but how to interpret them.
Current RatioCurrent ratio falls under the liquidity ratio category and identifies an organizations "ability to pay off short-term obligations as they come due". (p.54).
The higher the organizations current ratio is the better as this signifies there ability to pay there obligations along with the capability of selling there product.
Inability to collect on receivables or "have long inventory turnover can run into liquidity problems" as an organization is then not able to meet there obligations. Current...