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Analysis of Financial Ratios

Essay by   •  April 13, 2012  •  Research Paper  •  683 Words (3 Pages)  •  1,114 Views

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Xerox Corporation is a company that centers its attention on developing, manufacturing marketing servicing, and financing a complete range of document processing products and services to improve the productivity of its clients. We evaluated the financial statements of Xerox by analyzing its principal financial ratios during the period of 1998 to 2000.

Liquidity ratios:

The current ratio of the company in this period shows an increase from 1.47 (1998) to 2.08(2000)).This increase is due to the decrease of the current portion of long debt from (4,104 to 2,693) Even though, this ratio shows that the company company's current assets can cover its current liabilities, It is necessary consider that the account Finance receivables represent between the 38% and 42 % of the current assets and part of this account is compromised with the long debt term. We can see in the quick ratio of the company that its liquidity decrease when it is not considered the inventory (from 1.08 (1998) to 1.78(2000)).

Leverage ratios:

The debt to equity ratio during these three years has increased (from 3.96 to 5.04). It means that creditors have more than five times as much money in the company than shareholders. In the case of Xerox, this ratio could be high since a portion of finance receivables are compromised with the long terms debts that represents between the 63% 1998 and 73% 2000 of the total liabilities. For this reason the Debt to Assets ratio gives us a better view of the leverage of the company. This ratio has increased from (0.79 to 0.83) in this period. This increase is due to the increase of the long term debt (from 14,971 to 18,097) Xerox has compromised a high percentage of its assets to pay its liabilities.

Activity Ratios

The Account receivables turnover ratio doesn't show a significant variation during this period since it changes from 50 days in 1998 to 45 days in 2000. It means that the company cashes its receivables during these periods of time.

The Total Assets turnover ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales, but for Xerox, a company with low profit margin, tends to have high asset turnover (65% in 1998 and 63% in 2000). The lower the profit per dollar of assets, the more asset-intensive a business is.

Profitable Ratios

The Profit Margin ratio of Xerox was very low in 1998 (2%) and in 2000 was (-2%). This low profit margin shows the intense competition in the late 90s, and the increment of foreign competitors that were more sophisticated and beat Xerox with the market of advanced colors and digital copying technology. The decrease in this ratio is due to the decrease in sales (19,447 (1998) and 18,632 (2000) and an increase



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