In order to compare the 3 companies, it is important to analyze the financial statements to give a picture of profitability, management of assets and inventories.
Management of assets
Company 1 exhibits the best asset management among its competitors. This is show by the company registering the highest return on asset, at 0.08, followed by company 2 at 0.01 and lastly company 3, -0.29. Consequently, company 1 has well managed assets which insinuates highest productivity in its assets followed by company 2.
Liquidity
Company 3 has the highest quick ratio of all, at 1.04, followed by company 2 and finally company 1. This shows that company 3 has the highest capability of using its most liquid assets to cover its short-term obligation. The same scenario is depicted by the current ratio which also indicates company 3 as having the highest. In which case, the scenario indicates that the company is best placed in settling its short term obligation by its current assets.
Cash conversion cycle
The companies are compared in terms of days inventory outstanding, days sales outstanding and days payable outstanding. Company 2 has the lowest value recorded for cash conversion cycle, at 19, followed by company 1 at 21 and finally company 3 at 61. It comes out that company two takes the shortest cycle when collecting on sales and turnover inventory. As the result, company is more profitable because of presence of fast-moving working capital.
Solvency
In terms of the ability to cover interest, company 1 is best placed because it has the highest times interest earned, followed by company 2. This means that company has the ability of paying for interest with the greatest number of times as compared to its competitor. However, company 2 has the lowest financial risk associated with its operation; this is evident by the lowest recorded debt ratio. This means that company 2 does not rely too much on its debts to finance its assets as exhibited by company 3.
Recommendation
