SWM - Mark Moore

Financial AnalysisFinancial analysis uses several different ratios in order to measure the liquidity,profitability, and viability of a firm. We use different financial ratios to discover how Schweitzer-Mauduit is performing compared to its competitors, as well as the industry. The three categoriesof the financial ratios include liquidity, profitability, and capital structure ratios. Liquidity ratiosare used to evaluate how well a firm is able to meet its short-term liabilities; how fast they canturn their assets into cash to pay off current debt. We used eight different ratios to measureliquidity: current ratio, quick ratio, working capital turnover, accounts receivable turnover, days’sales outstanding, inventory turnover, and days’ supply of inventory. After completing theliquidity ratios, we concluded that Schweitzer-Mauduit performed on average with the industry.This is good because it shows that SWM is paying off its short-term commitments with thespeed of the industry.The next category is profitability ratios. Profitability ratios are used to constructinformation necessary to determine a firm’s ability to generate profit. They set a basis ofperformance of a firm. We used nine different ratios to evaluate profitability: gross profitmargin, operating expense, operating profit margin, net profit margin, asset turnover, return onassets, and return on equity, internal growth rate, and sustainable growth rate. The overallperformance of Schweitzer-Mauduit is slightly under performing when compared to the industry.The third and final category is the capital structure ratios. Capital structure ratios areused to evaluate a how a firm finances its operating and investment activities. They reflect howwell a company is using its debt and equity to finance its operations and manage its credit risk.The three ratios used are times interest earned, debt-to-service margin, and debt-to-equityratio. We also use Altman’s z-score to analyze the risk the firm has to becoming bankrupt.Schweitzer-Mauduit has the lowest debt-to-equity ratio in the industry and a low ratio in timesinterest earned, but had a stable debt-to-service margin. The Altman’s z-score showed thatSchweitzer-Mauduit has fallen into the “gray area”, giving them high interest rates. SWM mustimprove sales or lower debt in order to stray away from bankruptcy in the future.14