Strategic Management: Formulation and Implementation

Trend Analysis

Figure 5-2 illustrates graphs of Jimco's current ratio, acid-test ratio, debt ratio, and return on total asset ratio for the past five years. Surveying the trend in Jimco's liquidity ratios reveals that Jimco's current and acid-test ratios compare very favourably with their respective industry norms from a creditor's perspective.

Jimco's debt ratio appears to have declined slightly over the past five years, with moderate interim fluctuation. Finally, the return on total assets ratio for the past five years depicts the relatively volatile nature of Jimco's business, with returns ranging from 4 percent in 1990 to 10 percent in 1992.

A Complete Ratio Analysis

No single ratio is adequate for assessing all aspects of the firm's financial condition. Two popular approaches to a complete ratio analysis are: the DuPont system of analysis and the summary analysis of large number of ratios (see: Table 5-7).