Gillette Company Case Study Essay Example | Topics and Well Written Essays - 1500 words

Gillette Company Case Study - Essay Example Quick ratio-Inventories are the least liquid of assets and face significant risks like they may be damaged or lost among others. They are hence reduced in calculating quick ratio. A higher quick ratio is also preferred. Cash Ratio- shows the percentage of current liabilities covered by cash and cash equivalents. This ratio measures the company’s ability to repay current liabilities using cash. A higher ratio is also recommended. A ratio of 1 and above is recommended since it indicates the ease to pay current liabilities using cash and cash equivalents, companies, however, opt to use available cash for other profit generating activities and hence the ratio is ideally less than 1. Gillette’s cash ratio is 0.19 which falls far below the recommended rate. This may show that the firm does not keep its revenues in cash, and this may hinder its ability to repay its current liabilities in the short term. These liquidity measures indicate that Gillette is not able to meet its current obligations with ease. That means that the firm has to sell some of its fixed assets in order to reduce chances of insolvency. There is therefore need for improvement by the management. The debt ratio is less than one indicating that the firm has more assets than debt. The rate is, however, higher than 0.5 which is the recommended level. This is a good indication since it implies less leverage and hence fewer financial risks but management should work on increasing the level of assets and reducing liabilities. Return on equity- this is a ratio of net income to total shareholder’s equity. It indicates the amount of profit the company makes for its owners. A high ratio is preferred by investors since they are assured of high returns on their investments. Inventory turnover- this is the ratio, of the cost of goods sold to inventories, showing the number of times the company restocked its inventory. A higher ratio indicates high sales as a result of fast movement of the