Apex foods has an inventory turnover of 1.

70 times in the year 2018, which implies that the firm

has sold and restocked its inventory 1.70 times, which is very low. The inventory turnover was
the lowest in 2016 at 1.65, which later increased in 2017 to 1.95, which is the highest.
Unfortunately, the inventory turnover ratio in the most recent year, 2018, decreased from 2017.
Therefore, their performance in 2018 had deteriorated. The low inventory turnover indicates that
their inventory management cannot sell off their inventories efficiently and rarely need to
restock. Thus, the company cannot convert its inventory into sales at a sufficient rate as its
operating performance is poor. This poor performance will negatively impact its stockholders as
the low sales revenue will lead to low gross profits and earnings, which causes the company's
stockholders to be dissatisfied with the company's management and operations.

Olympic foods has an inventory turnover of 7.33 times in the year 2018, which implies that the
firm has sold and restocked its inventory 7.33 times. The inventory turnover ratio was the
highest in 2018 at 8.46, which decreased to 6.66 in 2017, which was the lowest. In the most
recent year, 2018, the inventory turnover ratio increased from that of 2017, so their performance
in terms of inventory management has improved. Since they have a good inventory turnover, it
indicates that their management can efficiently convert inventory into sales, so they need to
restock inventory more frequently to generate more sales. The higher sales revenue leads to a
higher gross profit and earnings for the shareholders, which causes the company's stockholders
to be satisfied with its good management and operations.

Verdict: Upon comparing Apex foods and Olympic foods' performance, the investors will be
more willing to invest in Olympic foods based on their much higher inventory turnover ratio
compared to that of Apex foods. This is because inventory management of Olympic foods was
able to convert inventories into sales at an impressively higher rate relative to that of Apex
foods. Moreover, in the most recent year, in terms of inventory management, Olympic foods'
performance showed an improvement, which was a stark contrast to Apex foods' declining
performance.
Apex foods has an average age of inventory of 214 days in the year 2018, which implies that
the firm took 214 days on an average to sell off its inventory. At 221 days, the average age of
inventory was the highest in 2016. A year later, it had decreased to 188 days in 2017, which
was the lowest. In the most recent year, 2018, the average age of inventory has increased in
2017, which means that their performance in inventory management has worsened in recent
times. This decrease in performance is because the firm's time taken to convert its inventory
into sales has increased. Apex foods has a very high average age of inventory, which means
that its operations and inventory management are performing very poorly as they are investing
excessively in inventories. Due to the high average age of inventory, the firm takes a long time
to sell off its inventories and collect cash. Therefore, they generate lower sales, which results in
lower gross profit and earnings for the stockholders. This causes dissatisfaction among the
company’s stockholders based on the company’s poor management and operations.

Olympic foods has an average age of inventory of 50 days in the year 2018, which implies that
the firm took 50 days on average to sell off its inventory. Among the three years, the average
age of inventory was the lowest in 2016 at 43 days, which increased to 55 days in 2017, which
was the highest. In 2018, the average age of inventory decreased from that in 2017; therefore,
we can conclude that their performance in inventory management has improved. The lower
average age of inventory indicates that the firm requires a shorter period of time to convert its
inventories into sales. Thus, they can sell off their inventories quicker to collect cash. This
results in higher sales revenue and gross profit, causing the company’s shareholders to be
satisfied with its efficient management and operations.

Verdict: When comparing Olympic foods to Apex foods, investors will be more likely to invest in
Olympic foods due to their far more efficient inventory management. The average age of
inventories of Olympic foods is approximately 4 times lower than Apex foods which shows that it
will have higher sales and thus result in higher returns for its investors. On the other hand, Apex
foods shows poor inventory management as they are investing excessively in inventories which
is the least liquid current asset.
Apex foods has an average collection period of 26.1 days in 2018 which implies that the firm
takes 26.1 days on an average to collect cash from their customers. Over the three years, the
average collection period has a trend of decreasing. As we can see, the average collection
period was the highest in 2016 at 49.6 days which continuously decreased significantly to 39.4
days in 2017 and 26.1 days in 2018. The implication of this is that their credit manager who is
responsible for collecting cash is taking less time to collect cash from their customers.
Therefore, the performance of their credit manager in terms of account receivable investment
has improved compared to the previous years. Consequently, their credit management and
operations have become more efficient. Since they collect more cash in a shorter period of time,
they can invest the cash in more business opportunities so the lower average collection period
is better. This way the goal of wealth maximization for their shareholders can be achieved
through an increase in the inflow of cash which will lead to higher satisfaction from their
shareholders.

Olympic foods has an average collection period of 5.6 days in 2018 which implies that the firm
takes 5.6 days on an average to collect cash from its customers. The average collection period
is fluctuating very slightly over the last 3 years with the lowest being at 5.0 days in 2017 and the
highest at 5.6 days in 2018. In the most recent year, 2018, the average collection period has
increased only marginally to 5.6 days from the previous year. Therefore, we can see that the
performance of the credit manager who is responsible for collecting the cash from customers
has been relatively stable over the past three years. Thus, we can conclude that their credit
management and operations are efficient which will lead to their stockholders having more trust
in their company.

Verdict: If an investor compares the two companies in terms of their average collection period,
he shall choose to invest in Olympic foods rather than Apex foods. The credit managers of
Olympic foods take approximately 5 times less time to collect cash from its customers which
indicates that the management of Olympic foods is far more efficient. Moreover, their
performance over the last 3 years has been relatively stable so their stockholders can trust them
for their consistently good performance.
Apex foods has a total asset turnover of 1.02 in the year 2018 which implies that the firm has
converted it's assets into sales for 1.02 times. The total asset turnover has a fluctuating curve
with the lowest being at 0.93 in the year 2016 which increases to 1.03 in 2017, the highest
value. In 2018, however, it decreased marginally to 1.02 so we can conclude that the firm’s
performance in the most recent year has deteriorated slightly. We came to this conclusion
because a lower total asset turnover means that for every $1 invested into their assets such as
inventory, machinery, etc. the firm is generating less revenue. Thus, the firm’s performance in
terms of asset efficiency has dropped slightly in 2018 compared to the previous year so the
stockholders will receive less returns causing them to be dissatisfied with the company’s asset
management and operations.

Olympic foods has a total asset turnover of 1.25 in the year 2018 which implies that the firm has
converted it's assets into sales for 1.25 times. In these three years, the total asset turnover has
been fluctuating with the lowest in 2016 when it was 1.24 and the highest in 2017 at 1.32.
Unfortunately, in the following year which is 2018, it dropped marginally to 1.25 which shows
that in the most recent year the firm’s performance has declined slightly; therefore, the
company’s performance in terms of asset efficiency has declined slightly. Due to the inefficient
asset management, the firm generates less sales revenue for each $1 invested into its assets.
This will cause the company’s stockholders to receive less returns causing them to lose trust in
the company’s asset management and operations.

Verdict: When comparing Apex foods with Olympic foods based on their total asset turnover,
the investor will choose to invest in Olympic foods due to their more efficient asset
management. In 2018, Apex foods and Olympic foods generated revenue of $1.02 and $1.25
respectively for every $1 invested into their assets which shows that the performance of
Olympic foods is better in terms of asset efficiency.
Apex foods has a debt ratio of 57.9% in 2018 which implies that for each $100 of assets, the
firm has $57.9 of dept. Their firm is debt-oriented as only $42.1 comes from equity which
accounts for a smaller part of the assets. Over the past three years, the debt ratio has been
declining. As shown in the graph above, the debt ratio was 62.9% in 2016 which consistently
decreased to 58.4% in 2017 and then 57.9% in 2018. We know that their times interest earned
in 2018 is horrendously low at 1.35 so their interest paying ability is terrible; in comparison, their
debt ratio is exceedingly high. Therefore, their performance in terms of debt ratio is very poor.
As this increases the chances of bankruptcy for the firm in the near future, we can say that their
operations and debt management are not performing well. As a result, their stockholders are
not optimistic about the firm's future prospects since the firm may not be able to pay its interest
payments to their creditors.

Olympic foods has a debt ratio of 34.1% in 2018 which implies that for each $100 of assets, the
firm has $34.1 of dept. They are not debt-oriented as the rest, $65.9 comes from equity which
accounts for a larger portion of the assets. Over the past three years, the debt ratio of the firm
has been fluctuating where the highest was in 2017 at 41.7% and the lowest was in 2018 at
34.1%. From this we can see that their debt ratio has dropped drastically in the most recent
year, 2018. We know that the times interest earned of the firm has declined in 2018 so a lower
debt ratio would be better for the firm so their performance in terms of debt ratio has improved.
Consequently, the chances of bankruptcy in the near future falls since the firm will be able to
successfully pay off its interest payments. Thus, their stockholders are optimistic about the
company's outlooks as the firm's debt management and operations are working efficiently.

Verdict: Upon comparing Alex foods and Olympic foods, investors will be more interested to
invest in Olympic foods due to its higher efficiency in terms of debt management. On the other
hand, Apex has an excessively high debt ratio compared to its low times interest earned ratio
which will repel any potential investors as they have a risk of going bankrupt in the near future if
they fail to pay their interest payments.
Apex foods has a times interest earned ratio of 1.35 times in 2018 which implies that the firm
could pay interest expense another 1.35 times with its existing operating profit (EBIT). The times
interest earned ratio has a trend of increasing over the last three years. In 2016 it was 0.05
which later increased to 1.29 in 2017 and then increased fractionally to 1.35 in 2019. A higher
times interest earned is better for the firm as it decreases the possibility of bankruptcy in the
near future; therefore, their performance in 2018 has shown slight improvement. However, the
firm's performance in terms of solvency issues remains poor as the standard value of times
interest earned is 3. The firm is already struggling with solvency issues as it may be unable to
pay interest payment leading to bankruptcy. This will cause its stockholders to be highly
dissatisfied with the firm's management and operations.

Olympic foods has a times interest earned ratio of 13.65 times in 2018 which implies that the
firm could pay interest expense another 13.65 times with its existing operating profit (EBIT). In
the graph above, we can see that the times interest earned has a trend of decreasing over the
past three years. It was at 19.49 in 2016 which later decreased to 16.14 in 2017 and then to
13.65 in 2018. Therefore, the firm's performance in terms of solvency issues has declined as a
lower times interest earned increases the possibility of missing out on interest payments,
resulting in bankruptcy. However, the times interest earned of Olympic foods is abundantly
higher than the standard value which is 3. Thus, we can conclude that the firm's EBIT is much
higher than its interest payments. The firm's debt management and operations is performing
very well in terms of solvency issues since their chances of bankruptcy are low which will cause
its stockholders to be satisfied.

Verdict: When comparing the two companies, Apex foods and Olympic foods, Investors shall
be more willing to invest in Olympic foods as their times interest earned is very strong. This
indicates that they have a large EBIT and so, low possibility of failing to pay interest payments.
In sharp contrast, Apex foods is struggling with its solvency issues signified by their abysmal
times interest earned so they may be bankrupt in the near future.

Recommendations:
 1. The inventory management of Apex foods is in dire need of improvements as their rate
of converting inventories into sales is insufficient. Moreover, their average age of
inventory is tremendously high which does not bode well for the firm’s foreseeable
future. Moreover, their inventory management has worsened in the most recent year. As
a result, they sell off their inventories and restock less frequently. In 2018, Apex foods
had an average age of inventories of an estimated 7 months which is too long
considering that they are in the frozen seafood industry. Such a long shelf-life may
cause their inventories to perish before they are purchased by customers. Therefore,
they should decrease their investment in inventories to raise their inventory turnover and
hence, decrease average age of inventory.

2. The debt ratio of Apex foods is considerably large in consideration of its small times
interest earned so they need to decrease this discrepancy by simultaneously decreasing
their debt ratio and increasing their times interest earned. This effect can be achieved by
utilizing capital restructuring where the shareholders sell off their shares to raise more
cash. They can then use this cash to pay off their principal payments to their load
providers or bond holders. Consequently, their interest payments will fall, causing both
their debt to decrease and times interest earned ratio to rise up.

3. Olympic foods should consider undergoing “debt financing” to increase their

shareholder’s returns as their operating profit is more ample enough to pay more interest
payments. Their times interest earned ratio in 2018 was considerably high at 13.65 in
contrast to their relatively low debt ratio of 34.1%. To apply debt financing, they will have
to raise their debt which means increasing their interest payments. These interest
paymenst are tax deductible and so, the company shall be able to pay less taxes.

Notes:
● Debt oriented or not
● Equity %
● Debt financing
● TIE is low so they may go bankrupt if they miss out on interest payments.
● Interest exp is tax deductible
● But they do not have the interest paying ability so they cannot increase debt

● TIE up so chances of bankrupt lower

● Interest is paid out from operating profit (times more op profit to interest)
● High ebit means less missing out on interest payment
● Higher the better. Less p(x) of bankrupt
● Standard of TIE is 3
● Struggling in terms of solvency issues
●
●