Ak Steel Ratio Analysis

Current Ratio

The current ratio has shown an upward trend overall which is an indication that AK Steel is increasing their ability to meet their short-term obligations. This ratio is increasing due to the fact that AK's current assets are growing at a faster rate then their current liabilities. Over the 4-year span (2003-2006) their cash has increased $464,700,000 with an ending balance in 2006 of $519,400,000. The current ratio suggests that AK Steel is in very good standing with enough cash to make moves in the future.

Inventory Turnover Ratio

The inventory turnover ratio has increased over the 3 year span from 6.44 to 6.55 and is significantly higher then the competition. This shows a slight increase however it is still an area in which AK can work to improve. Because steel companies work on such small margins, a falling steel market can have a drastic effect on the net profit if there is leftover, high priced, inventory. This is an area in which a company can always work to improve their efficiency because it will pay off on their bottom line in the future.

Days to Sell Inventory

The days to sell inventory has decreased slightly over the 3 year period from 55.86 to 55.00 which is a good trend. However, this is also an area in which can be improved. For the same reasons above, inventory can have a drastic effect on net profit so the more a company streamlines their process, the less it will be effected by a falling market.

Gross Profit Margin

The gross profit margin has been all over the map over the 4 year period ranging from Ð'-6% to 13% which is just due to a volatile industry. The trend overall is positive going from 4% in 2003 to 10% in 2006. This is a positive trend and with my suggestions AK should be able to continue to improve due to the fact that cost of goods sold will continue to decrease overall.

Return on Common Equity

This is a difficult ratio to gauge, positive or negative, due to the ratio in 2004. 2004 was an unprecedented year for the steel industry. There was a consolidation in the industry and steel companies charged significantly higher prices for their product. Prices went from $260/ton of steel to over $600/ton. The profits of all steel companies were astronomical, AK's being $238.4 million, up from (560.4 million) the year before. This was nearly an $800 million dollar swing in one year. We all could have invested in any steel company for one year and made 300% or more in some cases. Looking at 2005 and 2006 they are still showing an increasing trend which is positive because it is due to an increase in both net income and shareholders equity.

Debt to Equity

The debit to equity ratio shows a decreasing trend which is positive because it is due to decreasing liabilities and a significant increase in shareholders equity. Shareholders equity early doubled 2006 going from $220.5 million in 2005 to $417 million. This ratio shows that AK Steel is in very good standing with their obligations.

Working Capital Turnover

Working capital turnover is showing a negative trend going from 3.16 in 2004 to 2.65 in 2006. This trend is negative because it shows an increase in investment in working capital for every sales dollar. The downward trend is a result of more investment in current assets compared to current liabilities and sales dollars.

Pretax Profit Margin

Pretax profit margin ratio is an upward trend overall however it is still very poor with a -.0001 in 2006. This is a reflection of the competitive nature in the steel industry driving prices downward. As a whole, this trend will increase with the continued consolidation

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