Essay: Ratio and Cash Flow Analysis

Sample Essay

The ratio analysis of three previous financial statements of Debenhams as indicated in the table below indicates that the current ratio and quick ratio of the company are neither too good nor too poor and the company is able to manage its cash flows in a stable manner as the current and quick ratio for three years do not show a significant change and the company is in a position to pay off its short term obligations as current liabilities and interest expense in an  effective manner but the company can improve these ratios in future years.

The debt management ratios on the other hand are better than the liquidity ratios as the debt ratio is close to 1 which means that Debenhams is quite effectively balancing its assets and liabilities. The short term and long term liabilities of the company can be met by selling of its assets if the company is unable to pay its dues and defaults on loans. The most interesting ratio is interest coverage or times interest earned ratio as it indicates how efficiently the company is managing its operating income to pay interest expenses. The interest coverage ratio for Debenhams indicates that the company is managing interest expense at a rate of 1.37, 2.60 and 2.41 times in 2006, 2007 and 2008 respectively. The growth in this ratio indicates that the company is increasing its efficiency in covering interest expenses which is a good sign for creditors and financial institutions.

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