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Calculate the current ratio and quick ratio for the latest two years, obtain the industry average ratios from IBISWorld, and analyze the results.
The current ratio, also called the working capital ratio, measures current assets of current liabilities. POOLCORP’s current ratio was 2.49 in 2019 and 2.99 in 2018 (POOL | Pool Corp. Financial Statements – WSJ. , 2020). When compared to the industry averages of 1.7 in 2019 and 2018, POOLCORP is beating the industry average. The quick ratio, also called the acid test ratio, measures short term liquidity of a company. POOLCORP’s quick ratio was .69 in 2019 and .79 in 2018. The quick ratio industry average of pool construction in the US was 1.7 for 2019 and 2018 (Roth, 2020). The quick ratio was 1.4 for 2019 and 2018. POOLCORP is below the industry average in the quick ratio. I am not worried about POOLCORP being below the industry average because swimming pool construction is just on aspect of POOLCORP’s business model. There are many other factors to consider when looking at POOLCORP.
Discuss what each of these ratios tells you about the company’s current financial condition, and how they compare to the industry averages. Identify the major causes of any changes in these ratios and discuss your assessment of the company based on these changes. Review the balance sheet and the notes to the most recent financial statements and identify any contingent liabilities.
POOLCORP recorded $1,117 (in thousands) in 2018 and $703 (in thousands) in 2019(POOLCORP Investor Relations, 2020). The decrease in contingent consideration liabilities is a healthy sign for POOLCORP. POOLCORP’s main contingent liabilities come from claims and litigation that is evaluated each quarter. In the 2019 annual report, POOLCORP states that these lawsuits will not have an adverse impact on the overall financial condition of the company. I believe that POOLCORP is handling each contingency well. Therefore, the contingent liabilities does NOT change my overall assessment of the company.