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Analysis of Ratios
Liquidity Ratios
Current Ratio: This Ratio analyses the liquidity of the company in terms of its ability to
pay its short-term commitments from its current assets. In other words it measures the dollar
value of current assets that the business is having against each dollar of current liabilities. Higher
the ratio better it is. The ideal current ratio is 2. For the purpose of calculating this ratio current
assets are divided by current liabilities. The ratio of the company has shown a decreasing trend.
The ratio was 1.77 during the fiscal year 2013 which decreased to 1.40 and 1.36 during the fiscal
years 2014 and 2015 respectively. It indicates decline in the efficiency of the company to pay its
current liabilities from its current assets during the period of analysis. The ratio of Under Armour
and the industry average are significantly higher at 3.13 and 3.03 respectively and suggests a
lower liquidity of the company as compared to its peers.
Quick Ratio: This Ratio analyses the liquidity of the company in terms of its ability to
pay its short-term commitments from its quick assets. In other words it measures the dollar value
of quick assets that the business is having against each dollar of current liabilities. Higher the
ratio better it is. The ideal current ratio is 1. For the purpose of calculating this ratio quick assets
are divided by current liabilities. The ratio of the company has shown a decreasing trend. The
ratio was 0.98 during the fiscal year 2013 which decreased to 0.69 and 0.67 during the fiscal
years 2014 and 2015 respectively. It indicates decline in the efficiency of the company to pay its
current liabilities from its quick assets during the period of analysis and suggests that the
company may find hard to pay its current liabilities. The ratio of Under Armour is significantly
higher at 1.18 whereas that of industry is lower at 0.46. It suggests that the ratio of Chester, Inc.
is lower than the competitor but is significantly higher than the ratios of other players of the
industry.
Working Capital: It is the capital that the business uses to run its day to day business
operations. Higher the working capital, better it is. The working capital of Chester, Inc. was
$21.29 million during the fiscal year 2013. It increased significantly during the fiscal year 2014
and stood at $37.30 million. During the fiscal year 2015 the working capital decreased and stood
at $30.37 million. The capital of company has decreased during the fiscal year 2015 but it is still
higher than the fiscal year 2013.
Solvency Ratios
Times Interest Earned Ratio: It is the ratio that measures the ability of the business to
pay its interest obligations on the debts it has taken. In other words it measures the proportionate
amount of earnings before interest and taxes that can be used by the business to pay off its
interest expense. Higher the ratio better it is. The ratio of the company was 10.08 during the
fiscal year 2013. Owing to significant increase in the earnings before interest and taxes the ratio
increased and stood at 12.01 times. But the ratio decreased again during the fiscal year 2015 and
stood at 6.72 times. It indicates that the ability of the company to cover its interest obligations
has dropped during the period of analysis. The ratio of Under Armour is significantly higher
27.43 which suggest a lower ability of Chester, Inc. to pay its interest obligations as compared to
the competitor.
Debt to Equity Ratio: This ratio makes a comparison between total debts and equity of
the business. In other words it measures the percentage of the financing of the business that
comes from its investors and from its creditors. It is better to have a low debt to equity ratio
because a higher ratio indicates more credit financing of the business than investor financing.
The ratio of Chester, Inc. has shown an increasing trend during the period of analysis as the ratio
increased from 0.55 during the fiscal year 2013 to 0.79 and 0.82 during the fiscal years 2014 and
2015 respectively. It suggests that the debts of the company have grown during the period of
analysis. The ratio of the Under Armour and industry stood at 0.38 and 0.31 respectively which
indicates that the Chester, Inc. has a lower ability in paying off its interest obligations as
compared to other players of the industry.
Equity Ratio: This is a solvency ratio that measures the value of assets that the company
has financed from the owner’s investments. It is always better to have a higher equity ratio. To
calculate this ratio the total equity is divided by total assets. The equity ratio of Chester, Inc. has
shown a decreasing trend and the ratio decreased from 0.45 in the fiscal year 2013 to 0.21 in the
fiscal year 2014 and subsequently to 0.18 during the fiscal year 2015. It indicates that the equity
financing of the assets of the company has declined overtime.
Profitability Ratios
Gross Profit ratio: This ratio calculates the profitability of the business on selling its
inventory or merchandise. This is the pure profit that the business earns from the sale of
inventory and that it can use to pay its operating expenses. The ratio of the Chester, Inc. has
shown a decreasing trend as the ratio has decreased from 41.42% during the fiscal year 2013 to
37.92% in the fiscal year 2014. The ratio further decreased during the fiscal year 2015 and stood
at 32.61%. The ratio of Under Armour, Inc. and industry average were significantly higher at
48.08% and 49.89% which indicates that the profitability of the company was lower than its
competitor and the other peers of the industry.
Net Profit Ratio: This ratio measures the percentage of sales that is left after paying all
the expenses related to the operations of the business. In other words this ratio measures the net
income earned by the business from each dollar of net sales generated. It is always better to have
a higher net profit ratio. The ratio of Chester, Inc. was 2.13% during the fiscal year 2013 which
increased to 7.90% during the fiscal year 2014 and again decreased during the fiscal year 2015
and stood at 3.13%. It suggests that the net income of the company is lower but has increased
during the period of analysis. The ratio of Under Armour, Inc. and the industry average stood
higher at 5.87% and 8.73% which suggests that the performance of the Chester, Inc. was lower
than the competitor as well as from the other peers of the industry.
Return on Equity: This ratio measures the ability of the business to generate net profit
from the investment of its shareholders in the company. It shows the net income generated by the
business against each dollar of its shareholder’s equity. It is always better to have a higher return
on equity. The ratio of the company was 28.4% during the fiscal year 2013. Owing to increase in
the net income the ratio increased extraordinarily to 73.53%. But during the fiscal year 2015 the
ratio again decreased and stood at 39.26%. It suggests that the return to the shareholders of the
company have increased during the period of analysis. The ratio of Under Armour, Inc. stood at
15.41% which is significantly lower than the ratio of Chester, Inc. and suggests that the company
has generated more profits from its shareholders investment during the period of analysis as
compared to its competitors.
Vertical Analysis
Balance Sheet
The current assets of the company are significantly higher at 97.56% of the total assets.
No significant change is observed in the current assets during the period of investigation. The
machinery equipment and office furniture of the Chester, Inc. has increased from 1.08% of total
assets during the fiscal year 2013 to 2.81% during the fiscal year 2015. The accounts payable of
the company have decreased during the period of analysis from 17.83% of the total assets in
2013 to 11.01% during the fiscal year 2015. The line of credit has considerably increased during
the period of analysis. The line of credit was 24.94% of total assets during the fiscal year 2013
which increased to 39.29% during the fiscal year 2014 and subsequently increased to 40.69%
during the fiscal year 2015. It indicates that the company has increased its debts during the
period of analysis. The total current liabilities of the company showed an increasing trend as it
increased from 54.85% of total assets during the fiscal year 2013 to 71.54% during the fiscal
year 2015. The total stockholder’s equity decreased from 45.15% of total assets in 2013 to
18.14% during the fiscal year 2015.
Income Statement
The cost of goods sold has increased significantly form 58.58% of net sales during the
fiscal year 2013 to 67.39% during the fiscal year 2015. It suggests that the cost of manufacturing
the goods has increased during the period of analysis. Owing to increase in the cost of goods sold
the gross profit of the company has decreased from 41.42% of net sales to 32.61% during the
period of analysis. The total operating expenses of the company have shown a decreasing trend
and they have decreased from 30.12% of net sales in the fiscal year 2013 to 25.47% during the
fiscal year 2015. The company also had loss on legal settlement of 7.93% during the fiscal year
2013. The net income increased from 2.13% of net sale to 3.13% during the period of analysis
showing increase.
Horizontal Analysis
Balance Sheet
The accounts receivable increased by 175.29% during the fiscal year 2014, but during the
fiscal year 2015 the accounts receivable decreased by 13.16%. The inventory increased by
220.22% during the fiscal year 2014 but during the fiscal year 2015 it decreased by 12.42%.
Prepaid insurance also increased by 54.74% in the fiscal year 2014 but decreased by 5.75%
during the fiscal year 2015. The total current assets increased by 165.73% during the fiscal year
2014 but decreased by 12.18% during the fiscal year 2015. Machinery, equipment and office
furniture increased by 505.81% during the fiscal year 2014 whereas no changer was observed
during the fiscal year 2015. Total fixed assets increased by 149.96% during the fiscal year 2014
but decreased by 12.24% during the fiscal year 2015. Total current liabilities increased by
235.90% during the fiscal year 2014 whereas a decrease of 9.60% was observed during the fiscal
year 2015. Total liabilities increased by 282.33% and decreased by 9.12% during the same
period. The retained earnings increased by 162.84% during the fiscal year 2014 but decreased by
79.16% during the fiscal year 2015.
Income Statement
Net sales decreased by 14.13% during the fiscal year 2014 and increased by 2.45%
during the fiscal year 2015. Gross profit showed a decreasing trend and decreased by 21.38%
and 11.91% during the fiscal years 2014 and 2015 respectively. During the fiscal year 2014 the
total expenses decreased by 35.61% whereas they increased by 15.54% during the fiscal year
2015. The net operating income increased by 16.54% and decreased by 52.34% for the same
period. The net income increased by 218.04% during the fiscal year 2014 but decreased by
59.43% during the fiscal year 2015.

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