Sample Solution

Financial analysis is a crucial tool used by companies to assess their financial health. It involves evaluating four types of ratios: liquidity, activity, profitability and solvency. This financial analysis for the last three years of the Children’s Nest will reflect how well it has been performing financially as a company.

Liquidity ratio measures a business’s ability to pay short-term debt obligations with current assets (Nixon, 2020). The quick ratio was 0.89 in 2018 then dropped to 0.82 in 2019 before increasing again in 2020 at 1.16. The current ratio rose steadily from 1.43 in 2018 to 1.71 in 2019 and 2.03 in 2020 (Children’s Nest Financial Statements, 2018-2020). According to industry benchmarks established by Dun & Bradstreet (2019), these numbers indicate that Children’s Nest is able to cover its liabilities over time using readily available liquid assets or cash equivalents when meeting its short-term debts and other needs such as accounts payable payments, wages or rent/lease payments due within 12 months if needed be (Dun & Bradstreet Corporation, 2019). This indicates that the business is generally healthy and can fulfill any unexpected expenses with relative ease without having difficulty fulfilling day-to-day activities or operations which makes this an attractive position for investors considering investing into the company due to its strong liquidity position over time

Activity ratio measures how efficiently resources are managed within organizations (Nixon, 2020). Inventory turnover decreased from 6 times per year in 2018 down 4 times per year by 2020 indicating there were not enough sales being made even though inventory levels could have been reduced further during these periods as supply chain operations were still maintained at optimal levels throughout this period . On the other hand asset turnover increased from 1 times per year up 3 times per year during this period indicating that more effective use of assets became better utilized over time across all areas of operations leading upto greater sales performance overtime both domestically and internationally through numerous acquisition deals across many regions globally

Profitability ratios measure how efficient businesses are at generating income relative to their expenses(Nixon, 2020). Gross margin percentage remained relatively steady between 21%- 28% since 2018 suggesting there hasn’t been any significant changes either positively or negatively overtime however net profit margins did increase significantly rising from 7% up 10 % during this period suggesting management strategies have become increasingly successful at reducing costs while maintaining high levels customer service leading towards increased sales performance overall.