CURRENT RATIO:

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid
the company is. Current ratio is equal to current assets divided by current liabilities. Looking at the ratios for
the Year 2004 to 2007, we see a general decline in the current ratio which, at 2.3 in 2004 is the highest
value in the 4 years considered. From that it steadily declined to 1.3 in 2007. The company gradually moved
from a conservative current assets policy to an aggressive current assets policy where it maintained current
assets just 30% above current liabilities. This also shows that Tecumseh gradually moved to an aggressive
working capital policy since net working capital is the between current assets and current liabilities which
has been steadily decreasing. The company may have decided to do this because it may have found
increased synergies with its suppliers (both raw materials and money) and also made its supply chain more
efficient. Due to this, the company could take the risk of keeping its current assets just 30% above current
liabilities.

QUICK RATIO:
A measure of a company's liquidity and its ability to meet its obligations, Quick ratio, often referred to as
acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current
liabilities. Quick ratio is viewed as a sign of company's financial strength or weakness: the more it is the
better for the company, but it is not always necessarily so. Current and quick ratios being high means the
company has invested a quite a lot in current assets, more than it is required. This helps the company to
face any untoward incidences such as loss of goods due to calamities or changes in the demand and
supply. But if the company can accurately forecast what the demand is going to be and then tell its suppliers
how much of material it would need, then it can plan its investment in current assets according to the above
forecasts. If the company keeps on investing in current assets as it had been doing in the previous years,
without looking at the present market conditions, then it would be putting in money where it won’t be earning
any return. Tecumseh, in keeping with its shift to aggressive working capital policy, has gradually reduced it
investment in current assets vis-à-vis its current liabilities due to which the quick ratio has come down. Quick
ratio is also affected by the inventory, which has also decreased as we shall see later.

TANGIBILITY OF ASSETS:
Tangibility of assets is the ratio of Fixed Assets to Total Assets. It gives the proportion of investment in fixed
assets to total assets which include intangible assets such as goodwill, etc. The main use of this ratio is to
show how much assets the company can use as collateral for raising funds through loans. For Tecumseh,
this ratio has increased steadily over the years. In 2007, almost 60% of the total investment is in fixed
assets.

INVENTORY TURNOVER:
The ratio of a company's annual sales to its inventory, or equivalently, the fraction of a year that an average
item remains in inventory. Low turnover is a sign of inefficiency, since inventory usually has a rate of return
of zero. Looking at the data, we see that the Inventory Turnover ratio in 2004 was around which reduced to
6.5 in 2005 and has shown an increasing trend there onwards. As we know that the higher this value, the
better are the operations of the company, the increase from 8 to almost 87 in this value shows the
increasing operating efficiencies attained by Tecumseh. This goes on to show that the company has better
control over its inventory i.e. all aspects regarding inventory management such as lead time, order time, etc
and even over its operations which would have reduced the cycle time. The implementation of TQM, Six
sigma, Kaizen and lean manufacturing technologies would have added to the increase of this figure.

DAYS OF INVENTORY HOLDING:

This ratio in conjunction with the inventory turnover ratio, gives the overall picture of the operating
efficiencies attained by the company. This number is obtained by dividing 360 by the inventory turnover
ratio. So, it is actually inversely proportional to the inventory turnover ratio. This no. gives the no of days the
finished goods have to be kept before they are sold. In 2004, the no. was 45, which means that on an
average, the finished goods were lying for 45 days before they were sold to customers. Comparing this
figure with 2007’s value of around 4, we can see the increase in the operating efficiencies achieved by the
company, most of all in the Supply Chain.

CA TURNOVER:
Net sales divided by total assets. This is a measure of how well assets are being used to produce revenue.
This ratio actually gives us a no. of how many Rs. (or any currency) worth of sales occur for a Re. invested
in current assets. Over the four years studied, this figure has been constantly rising since the no. of sales
have been increasing due to various economic and other factors. The company, through efficient funds
management, operations and employee management has been able to meet this increase in demand so as
to take the maximum benefits of this expanding market. Another ratio used is the Net Current Assets
Turnover ratio, which is Net Sales divided by the difference of current assets and current liabilities i.e. net
current assets. This ratio has also increased over the years studied.

FIXED ASSETS & NET FIXED ASSETS TURNOVER RATIOS:

Fixed assets and net fixed assets turnover ratios are used on the same lines as the current asset and net
current asset turnover ratios. Only difference is that these show how well the fixed assets are being utilized
to generate revenue. These figures have been more or less constant over the years studied. Main reason for
this is that event though the sales have been increasing, the company is ploughing back the money earned
to purchase more fixed assets thereby rendering this ratio constant i.e. the ratio varied from 2.2 to 1.6 in 04,
05, but has been constant in 06 and 07. The net assets turnover takes the net assets as the denominator.
Net Assets are Total Assets minus current liabilities. This ratio is increasing over the years. The main reason
for this is that the sales have been increasing. The increasing effect in the Fixed Assets is negated by the
increasing effect in the current liabilities which is subtracted, so it makes the denominator almost constant
for the four years and the ratio increases due to a rise in sales.

INTEREST COVERAGE RATIO:

This ratio is obtained by dividing Earnings before interest and tax i.e. operating income by total interest
payable for that particular year. This ratio is basically studied by banks and other financial institutions so to
gauge the repay ability of the loan that it may give to the company or it has given to the company.

GROSS MARGIN:
Gross income divided by net sales, expressed as a percentage. Gross margins reveal how much a company
earns taking into consideration the costs that it incurs for producing its products and/or services. Gross
margin is a good indication of how profitable a company is at the most fundamental level. Companies with
higher gross margins will have more money left over to spend on other business operations, such as
research and development or marketing. Gross Income taken is actually the Profits before Interest and
Taxes (PBIT) value found in the income statement. This is divided by net sales to obtain gross margin. The
values of GM for the years 04, 05 and 06 are negative as the company was making losses. In 07, the figure
improved to 0.05, a positive value. This could be due to the company starting to experience the
manufacturing efficiencies, the steps for which it may have taken in the previous years. In other words, the
company has considerably reduced the cost of production.

NET MARGIN:
Net profit divided by net revenues, often expressed as a percentage. This number is an indication of how
effective a company is at cost control. The higher the net margin is, the more effective the company is at
converting revenue into actual profit. The numerator here is the Profit after Tax value (PAT). Net margin has
also been negative for the years in which the company was making losses, and it became positive in 2007.

BEFORE TAX RETURN ON INVESTMENT:

This ratio is obtained by dividing PBIT by Net Assets. This shows, as the name suggest, how well the assets
are being utilized to produce the goods so as to earn the revenue. It was negative in 05 and 06 because
PBIT was negative since the company was making losses but it became positive in 07.