Financial analysis of W.T. Grant Company
Let me start of by saying that W.T. Grant had an unreliable tracking system of their cash. The cash flow during the 10 years was very unstable. The year that the liquidity problems start surfacing the most is 1971. The Current ratio which is measuring current assets over current liabilities goes from 2.8:1 in 1970 to 1.75:1 in 1971. That is a big drop for a corporation to be losing current assets over current liabilities. Also, The Long term debt over capitalization is at its highest that year compared to the years before; Being a 30.2 as compared to the previous year of just a 10.6. The lower the long term debt over capitalization is the better, so going from 10.6 to 30.2 in just one year should really open people's eyes. The Cash flow for 1971 shows a gain of 15.9
to reach its highest ending cash balance of the seven years out of ten at $49.9(millions). I think that this is not a good indicator of where the business is going. If you look closely at the return on assets (ROA) percent in 1971 it reaches 3.6% (net income/total assets) and after that it never goes back up. This is an indicator that management is not being efficient at using its assets to generate earnings thus making the company less profitable. The cash flow start showing financial problems in 1972 due to the fact that the net loss was at 19 and inventory increased immensely at a 100.8 difference from the previous year 1971. This shows that management is buying too much inventory and not producing sells which goes back to using assets adequately. W.T. Grant Company was doing well in the sense that they were gaining cash most of...