he quick ratio dropped from a strong 1.4 times in 1986 to a quite marginal 0.9 times in 1987. Further slippage in the quick ratio, coupled with the onset of a recession (not projected for the near future in early 1988), could expose the company to a significant liquidity risk.
The company's leverage position also deteriorated from 1986 to 1987. The long term debt to equity ratio rose from 0.2 in 1986 to 0.5 in 1987. The level of the 1987 ratio is not risky for the company; however, a risk could develop if the change from 1986 to 1987 is the beginning of a trend. The times interest earned ratio declined from 4.2 times in 1986 to 1.7 times in 1987. The 1987 ratio remained satisfactory; however, further deterioration could create significant problems for the company.
Gerber's activity ratios remained relatively stable from 1986 to 1987. The total sales to total assets ratio declined slightly from 1.4 times in 1986 to 1.3 times in 1987, while the total sales to total capital ratio was 1.8 times in each year. The company's activity ratio experience poses no problems for the near future. Profitability plunged at Gerber from 1986 to 1987. Measured as a return on total income, profitability declined from 5.4 percent in 1986 to 3.1 percent in 1986. Measured as a return on total capital, profitability dropped from 10.0 percent in 1986 to 5.6 percent in 1987. In absolute terms, net income dropped 37.4 percent from 1986 to 1987, while in terms of a proportion of total income, the drop was 42.6 percent, and in terms of a proportion of total capital, the drop was 44.0 percent. The significant profitability deterioration from 1986 to 1987 raised the danger flag for Gerber.
In the context of operating efficiency, performance in all three of Gerber's product groups declined from 1986 to 1987. The furniture group accounted for 11.8 percent of company sales in 1987. The group's operating profit declined from 5.0 percent of sales ...