A Financial Ratio Quarterly Trend Analysis of Kia Motors Research Paper

A Financial Ratio Quarterly Trend Analysis of Kia Motors - Research Paper Example This report represents a financial trend analysis of the company over four (4) quarters ending December 31, 2010. It also looks at a comparison of the performance of Kia Motors with the industry for the year ended December 31, 2010 and provides a SWOT analysis of the company. In addition to that the report at the ethical guidelines under which the company operates and makes recommendations to potential stakeholders. 2.0 Financial Ratio Computation & Analysis Financial ratios are used to determine the financial health of a business. The table in the Appendix below provides information on five categories of ratios which will be used to assess the financial health of KIA Motors Corporation. 2.1 Trend Analysis The table in the Appendix shows the quarterly trends for various ratios for the year ended December 31, 2010 in order liquidity asset utilization, profitability, Debt and market. 2.1.1 Liquidity ratios Liquidity ratios indicate the amount of funds the company has on hand to pay its debts as they fall due. The current ratio includes inventory which is not very liquid while the quick ratio does not. The table in the Appendix indicates that the current ratio for the 3 quarters range between 0.73 and 0.76 which is below 1. The quick ratio which does not include inventory ranges between 0.56 and 0.59. An acceptable current and quick ratio is 1.5 and 0.8 respectively (BPP Media Learning 2009). Other ratios such as working capital and current liabilities to inventory also indicates a worrying picture for Kia Motors in terms of the company’s ability to pay its debts as they become due. 2.1.2 Asset Utilization Asset utilization ratios indicate how efficiently the assets in the company’s operations have been utilized. The ratios in the Appendix show an inventory turnover rate of between 6 and 8 times for each quarter and a turnover of approximately 27 ti mes for the year. The asset turnover is a measure of how well the assets Kia Motors are being used to generate revenue (BPP 2009). The quarterly asset turnover rate ranged from 0.39 to 0.49 with the annual rate being the cum1.66. These rates show high and moderate efficiency levels respectively in the use of Kia Motors assets. 2.1.3 Profitability Ratios Profitability ratios are a combination of the effects of liquidity, asset management and debt on operating results (Brigham and Ehrhardt 2005). The ratios indicated in the Appendix as profitability ratios include profit margin which indicates the net profit percentage earned on sales of between 2% and 13% per quarter. The trends indicate vast improvements in the 2nd quarter of an 8% increase, up from 2%. The quarterly return on assets (ROA) for Kia Motors range from 1% to 5% per quarter and 13% for the year ended December 31, 2010. In the 2nd quarter there was a 2% increase over the 1st quarter while quarters 3 and 4 showed increases of 1%. The company’s returns on equity (ROE) increased from 2% in quarter 1 to 7%, *% and 11% in quarters 2, 3 and 4 respectively, ending with a return for the year of 26%. This is considered favorable for shareholders. 2.1.4 Debt Utilization Ratios Debt ratios provide an indication of the level of financial risk in the companies