The current ratio for United Steel Corporation grew from 1.80 in 2014 to 1.82 in 2015 and further to 1.87 in 2016. The growth is an indication that the liquidity of the company improved. The increase in 2015 can be attributed to a decline in cash and receivables and a corresponding decline in accounts payable and payroll and benefits payable. The increase in 2016 was caused by an increase in current assets.
The value of the debt-equity ratio increased from 0.92 in 2014 to 1.29 in 2015 and further to 1.33 in 2016. This ratio measures the leverage of a company; a high leverage level indicates that a lot of debt is being used to finance growth. In this case, it can be noted that both the values of debt and shareholder equity decrease. The decline in debt is caused by debt repayment, while the decline in shareholder equity is caused by negative values of retained earnings and an increase in accumulated comprehensive loss. The rate of decrease of shareholder equity is lower than that of long-term debt, which causes an increase in leverage.
The value of free cash flow dropped from $1,073 million in 2014 to ($141) million in 2015 and later increased to $421 million in 2016. The decrease in 2015 can be attributed to a decline in net cash provided by operating activities and an increase in capital expenditures. However, in 2016, net cash provided by operating activities increased, while capital expenditures declined. This ratio shows the amount of money that the company generated after removing all capital expenditures (Wahlen, Baginski & Bradshaw, 2014). In 2014 and 2016, the company had excess cash to invest in other activities.
The earnings per share dropped from $0.71 in 2014 to ($11.24) in 2015. In 2016, the value grew to ($2.81). These changes can mainly be attributed to the decrease in net income (loss) in 2015 and a slight increase in 2016. This ratio gives information on the earnings attributed to each share.
The price-earnings ratio dropped from 37.66 in 2014 to 0.71 in 2015 and further dropped to 12.83 in 2016. These changes are mainly caused by fluctuations in net earnings.
Return on equity decreased from 0.03 in 2014 to (0.67) in 2015. In 2016, the value of the ratio rose to (0.19). This ratio gives information on the profit generated per unit of equity. It also gives information on the efficiency of equity use. The changes in the value of this ratio were caused by a decrease in net income (loss) in 2015 and a slight increase in 2016. The ratio shows that the company is not profitable.
Finally, the company’s net profit margin dropped from 0.01 in 2014 to (0.14) in 2015 and later rose to (0.04) in 2016. These changes are caused by changes in net income (loss) and a decline in net sales over the years. The ratio shows that the company has low profitability.
In 2016, the net profit margin for the iron and steel industry was 1.21%, while the margin for United Steel Corporation was 0.04. Thus, the performance of the company is below the industry average. Secondly, the price-earnings ratio for the industry was 16.63, whereas the company’s ratio for the year 2016 was (12.83)—clearly lower than the industry average. Finally, the industry average for the debt-to-equity ratio was 0.09, while for the company, it was 1.33 in 2016. This difference shows that the leverage of the company was higher than the industry average. Taken together, these three ratios indicate that the performance of the company was lower than the industry average.
References
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2014). Financial reporting, financial statement analysis, and valuation: A strategic perspective. Boston, MA: South-Western Cengage Learning.