Profitability and Efficiency

 The profitability of the organization as well as the efficiency in revenue generation can be understood from the ratios above. The profit margin indicates that the firm can generate almost thirty percent income as a ratio of the revenue that the organization can remit. Furthermore, the ratio is stable, given that the net income as a ratio of assets stands at 27% in 2019.

Furthermore, the investors can enjoy more than a 55% return on their equity investment in the financial year of 2019. This indicates an ideal level of efficiency and profitability enjoyed by the firm in the financial year. Furthermore, the ratio of the stock price and the earnings generated per share stands at 31.4, indicating that the stock price is efficiently placed in generating returns for the organization for the management, investors, and shareholders (Hillier et al., 2021). The organization is therefore ideally placed for the increasing profitability and efficiency of the firm in the long run.

The activity the firm carries out indicates how efficiently it is being conducted in the long run. The account receivables and the value of the debt required for liquidity within the firm are pertinent. The receivable turnover, therefore, indicates that the firm can convert the accounts receivable from the customers within twenty-five days (Ross et al., 2019). Furthermore4, the inventory can be turned into revenue by the organization within five days, whereas the fixed assets can be converted to cash within at least one day. Therefore, this indicates a semblance of efficient activities within the firm in 2019.

The liquidity ratios indicate how fast the organization can meet short-term obligations within 2019. The current ratio is somewhat low as, ideally, it ought to be above 1.5 to indicate ample ability to meet the short-term obligations experienced by the firm. Furthermore, the quick ratio is a similar indicator, albeit the numerator is the current liabilities less the inventory value within the firm (Ross et al., 2019). This is because the inventory is less liquid than cash and other account receivables. The quick ratio is therefore a more specific indicator of the firm's ability to meet short-term obligations given prevailing current assets less inventory. The quick ratio is however low as ideally, it should be 1:1 indicating ample ability to sort the current liabilities with the present current assets. Therefore, the organization should up its liquidity game as far as 2019 figures are concerned.The investor who would opt in for the stock of this organization should consider the profitability and liquidity of the firm comprehensively. First and foremost, the firm is adequately profitable as far as return on equity is concerned; therefore, the capital invested by the investor is bound to appreciate considerably (Ross et al., 2019). However, the liquidity levels of the firm are worrying as increasing in this trend is bound to lead to insolvency if it is not properly checked in the long run. Therefore, the investor should consider the quick and liquidity ratios of the organization when deciding to put their money in this organization, as the management of short-term obligations is an indicator of long-term organizational solvency.

Appendix

References

Hillier, D., Ross, S. A., Westerfield, R., Jaffe, J. F., & Jordan, B. D. (2021). Corporate finance (4th ed.). Mcgraw-Hill Education.

Ross, S. A., Westerfield, R., & Jordan, B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.