The company’s liquidity ratios (working capital ratios) show healthy working capital for the company operations, however the quick ratio indicates the most liquid current assets only meet $.41 for $1 dollar of debt. Cash is critical for any small business, and this ratio does indicate cash flow issues at Ajax. The inventory turnover also validates cash flow issue, Ajax turnover its inventory 1.5 times in 2002. In 1998, Ajax was growing and able to maintain a good TO ratio, since then and increasingly have worse inventory turnover results. The AR showed that it took about 95 days to get the cash after the sales. The company’s profit margin was not impressive at 5% (estimated 8K taxes resulting in 18K profit), and at historical peak of only 7%. The solvency ratios showed high long term debt, and the company’s assets only covered 38% of the liabilities. The company is not healthy in cash flow, finance and operations. To loan money to Ajax is risky, however there is potential for growth.

Current Ratio Vs. Quick Ratio – AKA Acid-Test Ratio
Ajax’s liquidity showed that it has the ability to pay short term debt obligations. The ratio reflects the ability to convert to cash and cover its debt within 12 normal business months. The current ratio in 2002 was the lowest ever, at 1.51, which implies that the company was able to obtain $1.51 cash from every $1 of debt. The company’s current ratio indicate a relatively liquid company, and banks like to see minimally the $1.50 level. In sharp contrast, the quick ratio, which is indicative of Ajax’s short-term liquidity, showed difficulties meeting short-term obligations with its most liquid assets. The quick ratio = .41, which indicates Ajax was illiquid and in danger of collapsing.

Activity ratios
Ajax average collection ratio paints a picture of the inefficient cash management in areas of inventory and