Ratio Analysis

• Current Ratio:

Current Ratio is a measure on how well a company can pay its short term debt. We see a sharp increase in current ratio, from 1.443 in 2010, to 2.406 in 2011. This is caused by a sharp increase in short term investment, with a 350% increase. However, compared with Industry Ratio, SDE is still in the lower quartile from 2008-2010.

• Liabilities to Inventory Ratio (L/I ratio):

L/I ratio is a measure a company's reliance on inventories to pay off its debts. This Ratio keeps decreasing every year; which means that Super Duper Electronics lessen their reliance on available inventory to pay off debts. Compared with industry ratio, SDE did slightly better than industry median quartile. This is an improvement over 2008-2010, when SDE started at the lower quartile. However, the sharp decrease in this ratio can be attributed to a sharp increase in inventories.

• Inventory Turnover Ratio (IT ratio):

Inventory turnover ratio is a measure on how much a company replaces its inventory periodically. A high IT ratio means that a company's sales is strong, and vice versa. Although SDE IT ratio increases every year, it is still far below industry's lower quartiles. This means that SDE have poorer sales than industry's bottom 25%.

• Assets to Sales Ratio (A/S ratio):

Assets to sales ratio is used to measure how well a company is managing its assets to generate revenue. High assets to sales ratio means that a company requires less investment to manage, and vice versa. Although SDE A/S Ratio is increasing every year, it is still far below industry's lower quartiles. This means that SDE require a lot of investments to generate revenue. Which is why we see a $80,975 subordinate convertible debentures as a capital injection to the company.

• Return On Assets Ratio (ROA):

ROA is a profitability measure of how well a company is in generating revenue from its assets. This ratio decreases significantly in 2011, in otherwise a stable 8-10% over the years. This means that Super Duper Electronics did not manage its assets effectively to generate revenue. However, SDE ROAs were better than the upper quartiles of the industry from 2008-2010.

• Return On Sales Ratio (ROS):

ROS is a profitability measure of how much income being generated per dollar of sales. ROS is also called “operating gross margin”. After increasing from 2008-2010 and leading the industry, SDE ROS slide in 2011. However, SDE also lead the industry because their ROSs were better than the upper quartiles of the industry from 2008-2010.


Ref: PCAOB AU329 Ratio Analytics

Andreas